Germany's second largest carrier, Air Berlin, is filing for bankruptcy protection after its main shareholder, Abu Dhabi-based Etihad, said it would make no more financing available.
The loss-making airline said that after Etihad pulled funding, it "came to the conclusion that there was no further positive way ahead for Air Berlin".
To allay travellers' fears that they could be stranded on summer holiday, the German government immediately said it would provide a loan of 150 million euros (£137 million) so the airline can continue flights for the time being.
"We're in a time when many tens of thousands of travellers and vacationers are in multiple international holiday spots," the economy and transport ministries said in a statement. "The return flights of these travellers back to Germany with Air Berlin would not have been otherwise possible."
Economy minister Brigitte Zypries later told reporters the money was expected to last for three months.
Union ver.di called it a "severe blow" for the more than 7,000 employees of Air Berlin.
"Our priority now lies with securing the jobs," said Christine Behle, a union board director. "Air Berlin must proceed with transparency and provide all important information."
Air Berlin has been posting losses for years. It has been restructuring its operations and has been kept aloft in recent years by Etihad, which holds a 29.2% stake.
In December, German rival Lufthansa's Eurowings and Austrian Airlines units reached a deal to lease 38 planes from Air Berlin.
Following the bankruptcy announcement, Lufthansa said it was "supporting the restructuring efforts of the airline jointly with the German government" and that its leased aircraft would continue operating as before.
Lufthansa, Germany's largest airline, said it was "already in negotiations with Air Berlin to take over parts of the Air Berlin group and is exploring the possibility of hiring additional staff".
Ms Zypries said that the bridge loan "should give enough time for the negotiations to be brought to a conclusion".
The German transport and economy ministries said Air Berlin had been in negotiations with Lufthansa "and another airline" for a long time.
Etihad Airways said the bankruptcy filing was "extremely disappointing for all parties", especially as it had supported the airline over six years, but that it could not continue pumping money into a loss-making business.
"As a minority shareholder, Etihad cannot offer funding that would further increase our financial exposure. We remain open to helping find a commercially viable solution for all parties," it said.
The Emirati national airline said it continues to have codeshares and other business relationships with Air Berlin and will support its management.
Air Berlin's decision comes three and a half months after another Etihad-backed European carrier, Alitalia, entered its second round of bankruptcy protection in a decade.
Etihad said at the time that Alitalia needed a "fundamental and far-reaching restructuring" and it was not prepared to keep pumping money into the struggling Italian airline.