Passenger rights group takes legal action that could block Niki sale to IAG

(Updates with IAG declining comment)

FRANKFURT, Jan 2 (Reuters) - A group representing airline passengers has taken legal action to shift insolvency proceedings for budget airline Niki to Austria from Germany, in a move that could endanger the sale of the Air Berlin (LSE: 0GPE.L - news) unit to Britain's IAG.

Fairplane, seeking to recover more than 1 million euros ($1.2 million) it says Niki owes to passengers, filed separate legal cases on Tuesday to block insolvency proceedings in Berlin and to open them instead in Austria.

Although the sum sought is relatively small, a spokesman for Air Berlin liquidator Lucas Floether said the complaint could derail the sale of Niki to IAG's low-cost Vueling operation that was agreed last week.

"If the complaint before the Charlottenburg Court (in Berlin) succeeds, the sale of Niki to IAG would be greatly endangered," the spokesman said. A ruling by the court on the case was due this week.

British Airways' owner IAG said last Friday it would buy Niki for 20 million euros ($24 million) and provide up to 16.5 million euros in additional liquidity to the company.

The sale to IAG, which had been in exclusive talks to acquire the airline, appeared to mark the final chapter in the demise of Air Berlin, the former No.2 German air carrier that earlier owned Niki.

Fairplane argues however that Niki, which is registered in as a company in Austria, had been profitable but had lost access to bridge financing when insolvency proceedings were opened in Germany in December, grounding planes and stranding passengers.

Spokesman Ronald Schmid said that dragging Niki into the German insolvency process was wrong, and that passengers stood a better chance of getting their money back in the Austrian courts.

"We want to ensure that the insolvency is carried out in Austria - where it belongs - so that there are no conflicts of interest," Schmid told Reuters.

IAG declined to comment.

In appointing Floether to liquidate Air Berlin in December, a German insolvency judge was of the opinion that, although Niki was registered as a company in Austria, its centre of main interest was in fact in Germany. ($1 = 0.8301 euros) (Reporting by Douglas Busvine and Thomas Seythal; additional reporting by Sangameswaran S in Bengaluru; Editing by Adrian Croft)