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Etihad Sets Deadline on Investment Talks With Alitalia Abu Dhabi Airline Sets Deadline on Investment Talks With Alitalia
(35 minutes later)
PARIS — After reviewing Alitalia’s books for more than a month, Etihad Airways of Abu Dhabi said Sunday that it was in serious negotiations over a possible investment in the troubled Italian airline, and it set a 30-day deadline to wrap up a deal. After reviewing Alitalia’s books for more than a month, Etihad Airways of Abu Dhabi said on Sunday that it was in serious negotiations over a possible investment in the troubled Italian airline, and it set a 30-day deadline to wrap up a deal.
In a brief joint statement, which came as Italy’s prime minister, Enrico Letta, was on an official visit to the United Arab Emirates, the two airlines said their discussions had entered “the final phase” and that they would try to hammer out a common strategy in the coming weeks. In a brief joint statement, which came as Italy’s prime minister, Enrico Letta, was on an official visit to the United Arab Emirates, the two airlines said their discussions had entered “the final phase” and that they would try to devise a common strategy in the coming weeks.
“Any issues that may prevent the establishment of an appropriate business plan will have to be resolved to ensure the plan can be implemented to move Alitalia to sustainable profitability,” the airlines said, without elaborating on the remaining sticking points.“Any issues that may prevent the establishment of an appropriate business plan will have to be resolved to ensure the plan can be implemented to move Alitalia to sustainable profitability,” the airlines said, without elaborating on the remaining sticking points.
Alitalia’s “issues” are not inconsequential, nor is the size of the investment the airline is seeking — as much as 300 million euros, or $405 million, according to people with knowledge of the discussions who requested anonymity because the talks were ongoing. Alitalia’s “issues” are not inconsequential, nor is the size of the investment the airline is seeking — as much as 300 million euros, or $405 million, according to people with knowledge of the discussions who requested anonymity because the talks were not complete.
Over the last five years, Alitalia has cut costs, renegotiated contracts with workers and suppliers and shed noncore assets. But Italy’s grinding economic crisis, rising fuel costs and heightened competition from more nimble low-cost rivals have largely overwhelmed the carrier’s turnaround efforts. Over the last five years, Alitalia has cut costs, renegotiated contracts with workers and suppliers, and shed noncore assets. But Italy’s grinding economic crisis, rising fuel costs and heightened competition from more nimble low-cost rivals have largely overwhelmed the carrier’s turnaround efforts.
Negotiations with Alitalia’s previous strategic partner, Air France-KLM, over a similarly sized cash injection broke down in November after the Italian government and Alitalia’s creditors balked at the French-Dutch airline’s conditions for a deal, including a sizable write-down of Alitalia’s nearly €1 billion in debt. Air France, which at the time owned 25 percent of Alitalia, ultimately opted out of a subsequent rights issue, which lowered its stake to 7 percent. Negotiations with Alitalia’s previous strategic partner, Air France-KLM, over a cash injection of a similar size broke down in November after the Italian government and Alitalia’s creditors balked at the French-Dutch airline’s conditions for a deal, including a large write-down of Alitalia’s nearly €1 billion in debt. Air France, which at the time owned 25 percent of Alitalia, ultimately opted out of a subsequent rights issue, which lowered its stake to 7 percent.
Air France-KLM’s finances are much more constrained than those of Etihad, which is wholly owned by the government of Abu Dhabi, the capital of the oil-rich United Arab Emirates. Air France-KLM is in the midst of a deep restructuring, involving more than 5,000 job cuts.Air France-KLM’s finances are much more constrained than those of Etihad, which is wholly owned by the government of Abu Dhabi, the capital of the oil-rich United Arab Emirates. Air France-KLM is in the midst of a deep restructuring, involving more than 5,000 job cuts.
Etihad, the fastest-growing of the three major Persian Gulf carriers, has spent more than $1 billion over the past three years buying equity stakes and lending cash to half a dozen struggling airlines on three continents. In Europe, Etihad’s holdings include a 29 percent stake in Air Berlin of Germany; 49 percent of Serbia’s national carrier, Air Serbia; and a 3 percent stake in Aer Lingus of Ireland. Late last year, it took a one-third stake in Darwin Airlines, a tiny Swiss carrier, and rebranded it Etihad Regional. Etihad, the fastest growing of the three major Persian Gulf carriers, has spent more than $1 billion over the last three years buying equity stakes and lending cash to half a dozen struggling airlines on three continents.
Analysts said Etihad’s interest in Alitalia, as with its other partners, appeared to be primarily aimed at securing a fresh feed of passengers into its network of 94 destinations in 45 countries. Etihad’s annual traffic has grown by 42 percent over the past two years, to nearly 12 million passengers; it says one-fifth of its revenue is generated by its equity partners. In Europe, Etihad’s holdings include a 29 percent stake in Air Berlin of Germany; 49 percent of Serbia’s national carrier, Air Serbia; and a 3 percent stake in Aer Lingus of Ireland. Late last year, it took a one-third stake in Darwin Airlines, a tiny Swiss carrier, and rebranded it Etihad Regional.
Analysts said Etihad’s interest in Alitalia, as with its other partners, appeared to be primarily aimed at securing a fresh feed of passengers into its network of 94 destinations in 45 countries. Etihad’s annual traffic has grown by 42 percent in the last two years, to nearly 12 million passengers; it says one-fifth of its revenue is generated by its equity partners.
But some worried that an investment in Alitalia would be fraught with risk.But some worried that an investment in Alitalia would be fraught with risk.
“You can make an allowance for all of the other assets they have acquired because those were mostly small, niche players,” said Saj Ahmad, chief analyst for StrategicAero Research in London. “But Alitalia is in the thick of the mix in Europe, surrounded by competition on all sides. Even if the sticker price is low, it’s the cost that comes after it.”“You can make an allowance for all of the other assets they have acquired because those were mostly small, niche players,” said Saj Ahmad, chief analyst for StrategicAero Research in London. “But Alitalia is in the thick of the mix in Europe, surrounded by competition on all sides. Even if the sticker price is low, it’s the cost that comes after it.”
In an interview with The New York Times last year, James Hogan, the chief executive of Etihad, stressed that all of Etihad’s airline investments had to meet strict criteria for revenue generation and cost savings. In an interview last year, James Hogan, the chief executive of Etihad, emphasized that all of Etihad’s airline investments had to meet strict criteria for revenue generation and cost savings.
“We don’t invest for the sake of it’s the nice thing to do,” Mr. Hogan said. “Unless we believe we can make it work long term, we’re not going to step in.”“We don’t invest for the sake of it’s the nice thing to do,” Mr. Hogan said. “Unless we believe we can make it work long term, we’re not going to step in.”