Etihad Said to Near Deal to Become Alitalia Biggest Investor

Apr 03, 2014 10:06 am ET

(Update with analyst comment in fourth paragraph, CEO comment in seventh paragraph.)

April 3 (Bloomberg) -- Etihad Airways PJSC is close to an agreement to become Alitalia SpA’s biggest investor after studying the Italian carrier’s books for the past weeks, people familiar with the matter said.

The two sides may sign a letter of intent as early as this week, said the people, who asked not to be identified because the talks are private. Etihad, the Abu Dhabi flag carrier, is considering a cash contribution of at least 250 million euros ($343 million), two of the people said. The accord isn’t final and a deal may still fall apart, another person said.

Etihad, the smallest of the major three Middle East carriers, confirmed in December that it’s in talks with Alitalia, and the company said in February that it would decide within a month whether to invest in the unprofitable airline. Spokesmen for Etihad and Alitalia, which received a government- sponsored bailout last year, had no comment.

“Alitalia needs this investment by Etihad as it still has cash issue even after the latest capital increase,” said Andrea Giuricin, a professor at Milan’s Bicocca University. “Etihad can take a big slice of the Italian market, where Alitalia has still the leadership.”

Equity Stakes

Buying a stake in Alitalia would let Chief Executive Officer James Hogan tap a major economy that has attracted airlines including Emirates and low-cost carrier EasyJet Plc as they seek to capitalize on the local airline’s woes. Air France KLM-Group, which had been Alitalia’s biggest shareholder, declined to support a capital increase last year after losses ballooned at the Italian partner and a turnaround effort failed to bear fruit.

Etihad already owns stakes in Air Berlin Plc, Virgin Australia Holdings Ltd., Air Seychelles Ltd. and Aer Lingus Group Plc. It also holds a stake in Jet Airways (India) Ltd., Air Serbia and Darwin Airline of Switzerland, as part of Hogan’s strategy to funnel more business through his hub.

Etihad has “almost completed” its due diligence on Alitalia, the Italian carrier’s CEO, Gabriele Del Torchio, told reporters today in Venice, according to Italian newswire Ansa. An offer may come tomorrow, said Intesa Sanpaolo General Manager Gaetano Micciche, according to Ansa.

--With assistance from Deena Kamel Yousef in Dubai and Aaron Kirchfeld in London.