Etihad to acquire 49% stake in Italian airline

Alitalia is on course to be thrown a financial lifeline by Etihad Airways after the state-controlled Gulf carrier agreed to buy a 49 per cent stake in the Italian flag-carrier.

The deal should stabilise loss-making Alitalia, while at the same time help Etihad with its ambitious plan of creating an airline alliance that can fill its fast-expanding fleet with passengers. Etihad already owns 4 per cent of Aer Lingus.

No financial terms were disclosed but one person familiar with the transaction said Abu Dhabi-based Etihad would pay about €500 million for its stake in Alitalia, which only averted bankruptcy last year when the Italian government agreed a bailout also involving private shareholders.

Although the deal’s terms have not been finalised, it is expected to be endorsed by Alitalia’s key stakeholders, including the government.

However, the transaction is likely to face scrutiny in Brussels, and analysts said the deal was bad for European carriers because the industry’s profitability would benefit from the collapse of weaker airlines.

Etihad’s investment in Alitalia is expected to be subject to several contentious and onerous conditions – including job losses that trade unions fear will amount to 2,200 employees, or 17 per cent of the staff.

In addition, there could be a cut to Alitalia’s 132-aircraft fleet. Just as significant is Etihad’s push to strengthen Alitalia’s balance sheet – the deal could involve not just the Gulf carrier putting new equity into the company but also some of the Italian airline’s existing shareholders.

This could in turn raise state-aid issues because Poste Italiane, the state-owned parcel services group, became Alitalia’s second-largest shareholder last year. The investment is being examined by the European Commission.

It is unclear whether Air France-KLM, which last year rejected the case for merging with Alitalia, would be willing to participate in another equity injection. .

The other element to cleaning up Alitalia’s balance sheet under the deal is a restructuring of its borrowings – net debt stood at €813 million on September 30th last year, the last time the carrier published results. – (Copyright The Financial Times Limited 2014)