Etihad Airways Seeks Access to Pan-European Network
Airline Wants to Fly More Traffic East Through Abu Dhabi, CEO Says
By
Rory Jones
connect
March 3, 2014 4:30 a.m. ET
DUBAI—Abu Dhabi's Etihad Airways wants access to a pan-European network of Alitalia SpA, Air Berlin Inc. AB1.XE -2.50% and Air France-KLM AF.FR -2.03% to fly more traffic East through Abu Dhabi, according to Chief Executive James Hogan.
Etihad is interested in buying up to 49% of Alitalia, and it has been in talks with the struggling airline for weeks, performing the necessary due diligence. It wants access to the Italian carrier's strong trans-Atlantic and South American routes, but won't pay for that access at any cost.
"It's early days," Mr. Hogan said in an interview announcing the airline's annual results. "We have to be convinced that the airline can be moved to profitability."
Mr. Hogan said he wants to benefit from Alitalia's trans-Atlantic relationship with Delta Air Lines Inc. DAL -0.33% and access to a pan-European network of Alitalia, Air Berlin and Air France-KLM that can compete with Deutsche Lufthansa AG's LHA.XE -2.34% strong position in Italy.
Etihad Airways owns 29% of Air Berlin and entered into a strategic partnership with Air France-KLM in 2012 to code-share on flights, link frequent-flier programs and collaborate on procurement.
The carrier has embarked on an unproven strategy of buying stakes in other airlines from Australia to Ireland, and code-sharing to build its own network of alliances. It currently flies to Milan and will launch flights to Rome this year.
"Coming into Abu Dhabi, there's the opportunity [through Alitalia] to improve our traffic flows to the Middle East, China, South East Asia and Australia," Mr. Hogan said.
He expects Etihad's network of 47 code-share partners and its seven equity investments, which include Virgin Australia VAH.AU +1.43% and India's Jet Airways, 532617.BY +0.35% to help grow revenue beyond $7 billion this year.
Revenue from partners contributed $820 million, or 21%, of passenger revenue of $6.1 billion last year, Etihad said Monday.
In terms of Alitalia, the Italian carrier would have to undergo a "hard restructuring" to reach profitability, Mr. Hogan said, without elaborating.
Alitalia's debt has been a sticking point throughout months of talks to avoid bankruptcy. In late 2013, Air France-KLM allowed its stake to become diluted to 7% from 25% because it didn't want to invest more money in an airline without a write-down of net debt, which at the end of the third quarter last year stood at €813 million.
Intesa Sanpaolo ISP.MI -1.34% SpA and UniCredit UCG.MI -3.12% SpA took part in the fundraising last year and opened more lines of credit, but are unwilling to restructure loans provided.
"[Etihad] will ask to restructure [the debt] and we will say that we won't restructure it," Intesa's chief executive, Carlo Messino, told reporters last week.
Mr. Hogan believes he can achieve significant cost savings across all airlines in his network of equity partners, which would include Alitalia, by buying aircraft and parts in bulk and sharing systems and maintenance of aircraft. For example, the airline made a record $67 billion order for 199 aircraft and 294 engines in November, which could be used by its equity partners, Etihad said.
Net profit surged 48% to $62 million in 2013, it added.
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