After a long period of negotiation, Etihad has finally announced a deal to acquire a 49% stake (the maximum allowed under EU ownership rules) in troubled European airline Alitalia.
Full details of the transaction can be viewed here.
This is a continuation of Etihad’s “equity alliance” whereby it acquires minority investments in airlines (Aer Lingus, Air Berlin, Virgin Australia and others) as a means to build a network of partnerships to feed traffic into its hub in Abu Dhabi.
This is in contrast to its Middle East carrier rivals Emirates, which has eschewed equity interests in rival airlines in favour of revenue sharing partnerships and codesharing, and Qatar Airways, which has joined the Oneworld alliance.
Etihad will pay some €387.5 million to acquire an equity stake in Alitalia. It will also pay €112.5 million to acquire a 75% interest in Alitalia Loyalty Spa, which operates MilleMiglia, the airline’s frequent flier programme.
More interestingly (at least from a London perspective), Etihad will also acquire five pairs of slots at London’s Heathrow Airport valued at €60 million. The slot pairs will be leased back to Alitalia on an arm’s length basis. We think a valuation of €60 million seems low. Alitalia previously sold three slot pairs in late 2007 for €92m (to BA, Continental Airlines and US Airways).
This is logical for Etihad as it gives the airline security over valuable Alitalia assets should its restructuring of Alitalia fail. Clearly if it does, Alitalia could be left with a markedly diminished presence at Heathrow and Etihad may well seek to use the slots to expand substantially at Heathrow.
As for the Alitalia transaction itself, whilst Etihad is confident it can restructure the airline, it has a long track record of financial losses and fractious industrial relations, so the coming years will certainly be interesting for industry observers.