Air Berlin filed for insolvency in a local court of Berlin, though it announced it would not file bankruptcy protections for the Leisure Cargo GmbH and Niki Luftfahrt GmbH units.
The company said in a statement to the Frankfurt Stock Exchange that it had had no option after Etihad refused to offer any further financial support. The transport ministry said this was one of the most important factors in the decision to grant the airline the loan.
The German government granted a bridging loan of 150 million euros ($176 million) to allow Air Berlin to keep its planes in the air for three months and secure the jobs of its 7,200 workers in Germany while negotiations continue.
Air Berlin has racked up more than Euro 2.7 billion of losses in a little over six years and has net debt of Euro 1.2 billion.
The budget airline has depended on cash infusions from key shareholder Etihad Airways, an Abu Dhabi-based carrier, for many years.
The German government said it expected no anti-trust issues because Air Berlin would be sold off in bits. "We remain open to helping find a commercially viable solution for all parties", Etihad said.
Lufthansa says it is "jointly with German government" supporting Air Berlin's restructuring effort.
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"That's the process they should be going through with Air Berlin", he said. "However, airberlin's business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions", it said.
"We expect airberlin operations to continue during administration".
When the travel firm announced it was stopping trading in July previous year, it had 27,000 passengers in resorts across the globe and more than 110,000 customers with forward bookings for the peak summer months and beyond.
Ryanair and its ilk will be scouring for opportunities too to push into the German market.
"We see Lufthansa and Ryanair as the biggest potential beneficiaries from possible reduced supply in the medium term.with other European airlines also benefiting from better short-haul supply and demand", wrote Goldman Sachs analysts including Daniil Federov and Patrick Creuset.
An easyJet spokesman said it would not comment on speculation.