Etihad Extends Negotiations on Alitalia, Air Berlin Investments

Apr 07, 2014 4:48 am ET

April 7 (Bloomberg) -- Etihad Airways PJSC said it’s still working on commercial terms for an investment in Italy’s Alitalia SpA while closing in on a restructuring of its relationship with discount operator Air Berlin Plc.

The third-biggest Gulf carrier is negotiating on both fronts, Chief Executive Officer James Hogan said today as he seeks to add Alitalia to a batch of minority holdings purchased to help funnel traffic through his company’s Abu Dhabi hub.

Etihad is nearing an agreement that will make it the biggest investor in Alitalia after studying the Rome-based airline’s books for the past weeks, three people familiar with the plan said April 3. At Air Berlin, an earnings release was postponed twice last month, with the low-cost carrier saying it was working on a recapitalization plan to strengthen liquidity.

Etihad is continuing “due diligence” of Alitalia, Hogan said at the 2014 Global Aerospace Summit in Abu Dhabi. On Air Berlin, he said the Middle Eastern company is in “the final stages of negotiating the next stage of that partnership.”

Hogan is seeking to restructure the relationship with Air Berlin, in which Etihad holds a 29 percent stake, as the German carrier struggles to halt losses in a market where competitors include European discount leaders Ryanair Holdings Plc and EasyJet Plc, as well as Deutsche Lufthansa AG.

“Entering into the Air Berlin partnership gave us access to Germany,” he said. “All our key objectives have been met.”

‘Commercial Mandate’

As a non-European company Etihad is limited to minority stakes in European Union airlines, making talks complicated as it seeks to extract maximum influence for any investment. Hogan didn’t give any indication today of when he expects to reach a deal either on Alitalia or the Air Berlin restructuring.

Adding Alitalia to Etihad’s so-called equity partnerships would boost access to Europe’s third-largest outbound travel market while exposing it to the Italian company’s losses in short-haul travel where low-cost rivals are grabbing share.

“The mandate I have from the shareholders, the board, is if we can achieve an agreement that meets the commercial mandate then I am to come back and present that,” Hogan said. “At the moment that’s where we are with that discussion.”

Etihad is considering a cash contribution of at least 250 million euros ($343 million) to Alitalia, the people said last week, though the accord may still fall apart, one of them said.

The Gulf carrier confirmed in December that it was in talks with Alitalia and said in February that it would decide within a month whether to invest, a deadline that has now passed.

Air France-KLM Group, which had been Alitalia’s biggest shareholder, declined to support a capital increase last year after the Italian company’s losses ballooned and a turnaround effort failed to bear fruit.

Etihad already holds stakes in Virgin Australia Holdings Ltd., Air Seychelles Ltd., Aer Lingus Group Plc, Jet Airways (India) Ltd. and Air Serbia, as well as Air Berlin, and is awaiting approval for an investment in Swiss carrier Darwin.