Etihad to revive dormant Alitalia Cargo

Etihad to revive dormant Alitalia Cargo

Etihad Airways plans to revive and expand Alitalia’s dormant cargo business after acquiring a 49 percent stake in the perennially loss-making Italian airline.

The Abu Dhabi-based carrier is paying €387.5 million ($519 million) to become Alitalia’s biggest shareholder and will invest an additional €112.5 million in related assets, including landing slots at London Heathrow airport.

Further equity investments by existing Alitalia shareholders, restructuring of short- and medium-term debt and provision of new loan facilities places the value of the total rescue package at around €1.8 billion.

Etihad is expected to invest a further €600 million over the next three years to make Alitalia profitable by 2017.

Relaunching and expanding Alitalia’s cargo business to serve the Italian market, Europe’s third largest, is a key part of the Arab Gulf carrier’s strategy, Etihad CEO James Hogan said after signing a long-stalled deal on Aug. 8.

Alitalia will establish a center of excellence in northern Italy, invest in cargo-handling facilities at Italian airports and optimize “an integrated cargo network.”

Etihad’s emergence as a major global cargo carrier tracked the demise of Alitalia’s freight operations as it struggled to avert bankruptcy after years of losses and billions of dollars of state support.

Alitalia sharply reduced its cargo business and sold its three remaining MD-11 freighters to focus on passengers as part of a financial restructuring in 2011.

Cargoitalia, an Italian airline, moved in to plug the gap, acquiring the Alitalia aircraft and announcing plans to buy five Airbus A330 freighters, but it ceased operations at the end of the year, leaving the market to rival European all-cargo carriers, led by Cargolux and Lufthansa Cargo.

Etihad, by contrast, has been one of the fastest growing cargo airlines in the past five years. Its freight wing, Etihad Crystal Cargo, boosted revenue by 30 percent to $928 million in 2013 as volume surged 32 percent in a flat global market to nearly 487,000 tons.

Growth continued into 2014 even as many carriers mulled downsizing their freighter fleets, with volume soaring 25 percent year-on-year in the first half to just short of 269,000 tons.

“We have identified cargo as a major growth opportunity ... and this will be a billion dollar business in 2014,” Hogan said earlier in the year.

The Alitalia deal will help Etihad to close the gap with its Arab Gulf competitors, Emirates and Qatar Airways, which are rapidly increasing their cargo businesses, leveraging the region’s strategic location between Europe and Asia to build global logistics operations.

Etihad, which has a fleet of 10 freighters, didn’t say whether the revived Alitalia Cargo will return to all-cargo operations.

Contact Bruce Barnard at brucebarnard47@hotmail.com.