Etihad Airways gains European foothold with Alitalia deal

Etihad Airways gains European foothold with Alitalia deal

Alitalia aircraft

Alitalia aircraft.

Etihad Airways today established a foothold in Europe’s second-largest air freight market with an agreement in principle to acquire a 49 percent stake in Italian flag carrier Alitalia.

Etihad didn’t disclose financial details of the deal, which followed seven months of negotiations, but Italian transport minister Maurizio Lupi has said Abu Dhabi’s state-owned carrier is ready to invest up to €1.25 billion ($1.7 billion) in financially stricken Alitalia.

Alitalia, which has lost €1.1 billion in the past five years and was kept afloat with a €500 million government-brokered rescue last year,  risked running of cash and grounding its entire fleet without a deal with the Arab Gulf carrier.

Alitalia is believed to have reluctantly accepted Etihad’s demand for 2,200 job cuts and a restructuring of its debt.

The agreement, which is subject to regulatory approval, will give Etihad access to Europe’s fourth-largest passenger market and the second-largest cargo market after Germany.

Alitalia significantly downsized its cargo network and closed its freighter operation as part of a restructuring in 2011 to focus on passengers.

Cargoitalia, a local carrier, attempted to fill the void, taking over three of Alitalia’s MD-11 freighters and signing a contract for five Airbus A330 freighters, but it ceased operations at the end of 2011.

This opened up the market to other European carriers, including Germany’s Lufthansa Cargo and Luxembourg-based all-cargo airline Cargolux.

Etihad likely will leverage its Alitalia stake to boost its cargo business, which is on target to generate revenue of more than $1 billion in 2014.

The carrier’s freight unit, Etihad Crystal Cargo, increased traffic by 26 percent year-on-year in the first quarter to an all-time high of 127,821 tons, driven by growth in shipments to India and China and the launch of new routes to Brazil and Vietnam.

“We have identified cargo as a major growth opportunity ... and this will be a billion dollar business in 2014,” Etihad Airways CEO James Hogan said on the release of the financial results.

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