I have previously questioned Etihad’s policy of making significant investments in less than successful airlines.
The strategy appears to be in some trouble with problems at Air Berlin, Alitalia and Jet Airways.
Malta Today has reported that Etihad which owns 49% of Alitalia is having second thoughts on its investment in the airline because of the Italian government’s failure to honour a number of promises.
Various reports in the Italian media say that Etihad are “threatening” to withdraw its investment after a mere 18 months, with Alitalia currently losing €500,000 a day.
Why is this reported in Malta Today. Well, earlier this year, Alitalia signed a Memorandum of Understanding with ther Maltese government over the possible acquisition of 49% of Air Malta.
But if Etihad pulls out of Alitalia, it would definitely spell the end of Alitalia’s interest in Air Malta because the Italian airline’s future will be on the line.
Reports in the Italian media paint a bleak picture of Alitalia’s future as Etihad are only willing to invest more money in new aircraft and expand its operations if it is allowed to use Italy as a hub for intercontinental flights and carry out a restructuring process.
Etihad’s CEO suggests that there will be more downsizing at the Italian airline. Good luck with that. The Italian unions are resilient.
With low cost giant Ryanair close to taking the majority market share of the incoming passenger market to Malta and Air Malta’s financial sustainability in serious doubt, the part-privatisation of Air Malta is a priority for Muscat’s government.
MaltaToday reported that Alitalia are due to take a final decision on the acquisition of Air Malta this month following a rigorous due diligence exercise.
But last week the Maltese PM suggested that the deal was in jeopardy.
There is presumably a reason why Etihad does not make a direct investment into Air Malta; since it will inevitably have to fund the purchase by Alitalia.
Meanwhile over at Jet Airways all of the senior Etihad executives in Jet Airways’ top management have left and operational control of the airline is back in the hands of founder Naresh Goyal.
It is three years since Etihad invested in the Indian carrier and owns 24% of the airline.
Etihad Chief Executive Officer James Hogan and Chief Financial Officer James Rigney are Jet board members. But that is a very different role from operational management.
Jet insists that it continues “to work on identifying new initiatives and opportunities with cross functional teams from Etihad.
The reality is that Goyal has removed Etihad’s control. Goyal has led a new
marketing campaign, a new pricing strategy, a new loyalty programme and of course new global, commercial alliances.
Etihad’s investment into Jet was a simple matching of needs; Jet needed cash and Etihad needed access to the fastest growing aviation market in the world.
Jet and Etihad had different plans for each other; unable for instance to agree on Jet’s European hub, previously in Brussels.
So Etihad still has its investment in Jet but appears to have relinquished any management role.
Meanwhile Air Berlin has been bailed out by Etihad as it racked up 1 billion euros ($1.1 billion) of net losses in the past three years. In the latest plan Air Berlin’s operations are to be split into three. First, there will be a core network airline with hubs in Berlin and Duesseldorf, deploying approximately half the current Air Berlin Group fleet. Second, there are plans for a new leisure airline, combining part of Air Berlin’s fleet with TUIFly. Third, a significant part of Air Berlin’s fleet will be wet-leased to the Lufthansa Group.
A number of details are still to be clarified. But Air Berlin does appear to have a future for now which should reduce the losses.
In order to manage funding needs Etihad has apparently hired banks for a potential Islamic bond sale.
The sale plan comes as Etihad’s equity partners in Europe grapple with overcapacity, shrinking travel demand and mounting competition. Alitalia, 49 percent-owned by Etihad, may need to cut jobs to improve productivity as part of a restructuring program.
Emirates gave up its sole airline investment in Sri Lankan some years ago; saying at the time that it was a genuine, resource-consuming, distraction for the airline’s management. Etihad may be facing similar concerns.