British Airways, owned by IAG, had also bid for Niki, but lost out to Lufthansa and a report last week said it had restated its interest after the European Commission signalled concerns over the Lufthansa deal.

However, IAG has now dropped out, because a deal is no longer attractive, the person said.

IAG and Air Berlin declined to comment.

(Reporting by Klaus Lauer, additional reporting by Alistair Smout in London, writing by Victoria Bryan)