Etihad may unveil stake buy in Alitalia soon: CEO

[SINGAPORE] Etihad Airways could make an announcement about its stake purchase into ailing Italian carrier Alitalia sometime next week. Etihad CEO James Hogan said his company was undertaking final due diligence.

"We should be able to say something (about this) in about 10 days," Mr Hogan told BT.

Indeed, if it does buy a reported 40 per cent stake in Alitalia for some 300 million euros (about S$515 million), Etihad would tie up a deal which has eluded numerous other big players, including its own European strategic partner Air France-KLM.

And in doing so, it would be firmly digging its heels into Europe's fourth largest air travel market.

The 10-year-old Abu Dhabi-based carrier, which has a fleet of some 90 planes and another 120 planes on order, has made a string of equity purchases in airlines in Europe, Asia and the Pacific in recent years in its bid to boost growth and market access.

It now owns 29 per cent of airberlin, 40 per cent of Air Seychelles, almost 20 per cent of Virgin Australia, 3 per cent of Aer Lingus, and more recently bought 49 per cent of Air Serbia, 24 per cent into India's Jet Airways and is buying 33 per cent of Switzerland-based Darwin Airline. In all, it has 47 codeshare partnerships around the globe.

But it has no plans to join an airline alliance.

Mr Hogan said strategic partnerships through equity stakes enabled Etihad to side-step bilateral constraints, and gain penetration into new markets and domestic destinations in those markets.

Of course, it will also help feed traffic to and through its Abu Dhabi hub.

"Some 20 per cent of our revenue now comes from these tie-ups, and we will announce our third consecutive year of profit next week," he said. "With some 350 destinations on offer, we are now the world's sixth largest airline group."

More deals could follow, he hinted: "We will purchase (stakes) where it makes sense."

Operational rationalisation and cost management are often the first steps after the deal. In some cases, as in Air Seychelles and Air Serbia, it takes on management contracts. "Air Seychelles was losing US$25 million, but we managed to turn it around to a profit of US$1 million in 2012. Air Serbia now enjoys strong traffic and a modern fleet."

Savvy cost management enabled Etihad to recoup its US$105 million investment in airberlin within six months. Mr Hogan also sounded excited with the recent purchase of a 24 per cent in India's Jet Airways. "Jet gives us access to a huge market where there are now 40 million people who travel internationally, and connections into 26 Indian cities. And there is huge traffic between South Asia and the Gulf."

Looking at Australia, where Etihad's co-investors in Virgin Australia are Air New Zealand and Singapore Airlines, Mr Hogan ventured: "If we have all CEOs involved, Virgin Australia will have one of the strongest boards of any airline."

Etihad's investments are funded with internal cash flows, bank borrowings and export credit. Mr Hogan said that Etihad has tapped US$5 billion from debt markets in the last five years.