Etihad Airways of Abu Dhabi and Air Berlin, Germany’s second-largest airline, announced a strategic partnership Monday that will see Etihad become Air Berlin’s largest shareholder and gain access to new European routes as it seeks to keep pace with its larger Gulf-based rival, Emirates.
Under the terms of the agreement, Etihad will increase an existing 3 percent stake in Air Berlin to just over 29 percent through the purchase €73 million, or $95 million, in new shares while providing up to $255 million in loans to finance new jet purchases.
The deal also includes a code share agreement giving Etihad access to Air Berlin’s European short-distance network, and to the German capital of Berlin — a destination that Emirates in particular has long coveted in the face of fierce opposition from the German flag carrier, Lufthansa.
The purchase of such a sizeable stake in Air Berlin appeared to be the clearest signal yet of Etihad’s intention to continue its push into the European market at a time when the region’s major players, including Lufthansa and Air France, are struggling to hold down costs and maintain market share against what they claim is unfair competition from subsidized Middle Eastern rivals.
“Overnight, we have gone from having a minimal presence in Europe to a major one,” said James Hogan, Etihad’s chief executive, adding that Etihad was eager to exploit the new access that the Air Berlin deal will give to 33 million new passengers — most of them in Germany, Austria and Switzerland, which have robust leisure and business travel markets.
Etihad, the third-largest Gulf carrier after Emirates and Qatar Airways, has made no secret of its desire to raise its European profile. Industry executives have said the airline is also eyeing the Irish government’s 25 percent stake in Aer Lingus and that it had considered joining Virgin Atlantic’s bid for BMI, Lufthansa’s unprofitable British unit.
Mr. Hogan said Etihad had no immediate plans for further acquisitions in Europe, but he did not rule out future investments. Nor did he envision any further increase in the Air Berlin stake for at least two years.
“This will directly threaten the likes of Lufthansa, who are also worried about the challenging nature of the European airline scene,” said Saj Ahmad, chief analyst at StrategicAero Research in London. “It cements not just Etihad’s desire to expand in Europe, but also to draw in customers through its Abu Dhabi hub to connect to onward destinations like Asia and Australasia.”
Etihad is the second Gulf airline to make a major equity investment in Europe this year. In September, Qatar Airways bought a 35 percent stake in Cargolux, Europe’s largest freight carrier, which is based in Luxembourg.
Air Berlin, which has not recorded an annual profit in four years, had been seeking a strategic partner for some time and had reportedly approached a number of carriers in the Middle East and Asia about a deal in recent months following the resignation of its founder and chief executive, Joachim Hunold, in August.
The German discount airline’s net debt has risen to around €640 million in November from €489 million at the end of 2010, putting pressure on it to cut costs. To that end, Air Berlin plans to reduce the size of its fleet by 10 percent and has postponed the delivery of 19 new Airbus and Boeing jets that had been scheduled for delivery in 2012 and 2013.
