Abu Dhabi carrier Etihad enters final stages of Alitalia negotiations

Alitalia last year received a €500 million government-facilitated rescue package. Tony Gentile / Reuters

Etihad Airways has entered a “critical phase” of its negotiations with Alitalia after the two companies agreed yesterday on the principal terms and conditions of the acquisition of a 49 per cent equity stake in the struggling Italian airline.

The airlines said yesterday that they would “now move to finalise the transactional documents, that will include the agreed upon conditions, as soon as possible”. The deal is subject to final regulatory approvals, they said.

"The devil is in the details," said John Strickland, the director of the London-based JLS Consulting. "While it is now expected that the deal will go ahead, this is the critical phase for Etihad to ensure that they have achieved the optimum negotiation and that there are no surprises later."

The Italian carrier last year received a €500 million (Dh2.5 billion) government-facilitated rescue package. However, the company, which is losing €1.5m a day and is in debt to the tune of €1bn, again risks running out of cash by August if a partner cannot be found.

“The road to restructuring Alitalia will be very long,” said Will Horton, a senior analyst at the Sydney-based Centre for Aviation. “Etihad wants to invest in an airline with a clear future, so undoubtedly there are various terms in different sizes that still await definition.”

Etihad is demanding downsizing measures and thousands of job cuts at the airline – just as it did when it took equity stakes in Air Serbia and Air Seychelles, James Hogan, Etihad's president and chief executive, told The National in Los Angeles earlier this month.

Mr Hogan declined to say exactly how many jobs would be lost at Alitalia, but the Italian airline’s chief executive, Gabriele Del Torchio, is reported to have put the figure at 2,200 of the carrier’s 14,000 staff.

“National airlines are a pride for a country and often receive disproportionate attention than the number of jobs they create. Restructuring is sensitive,” said Mr Horton.

Other conditions under the spotlight include ending loss-making routes, negotiating new employment contracts with highly paid staff, and reducing airport costs.

Etihad, which will launch its Rome route on July 15, expects huge traffic flow to the new destination coming from the Philippines and Australasia. The Arabian Gulf carrier is expanding its network through codeshares and equity alliances.

Last year, Etihad grew its equity alliance to seven carriers – Aer Lingus, airberlin, Air Serbia, Air Seychelles, Virgin Australia, India’s Jet Airways and Switzerland’s Etihad Regional, which was formerly known as Darwin Airline.

“Alitalia is part of that strategy,” said Mr Hogan in Los Angeles. “So you’ve got big Italian communities in Australia. You’ve got the Philippines as a Catholic country [sending] pilgrimage traffic to Italy, the tour groups coming out of China and the Gulf. India is a huge market into Italy, so the actual traffic flows are strong.”

“Within Italy itself the Italians travel – whether it’s down to the Seychelles or down to Melbourne or east to India. So we start to mesh the network again.”

Mr Hogan said that he was planning to build up the airberlin and Alitalia network together and liaise with Air France-KLM, which Etihad has a codeshare with.

“With Etihad, Alitalia, Aer Lingus, Air France, KLM and airberlin, there’s nothing stronger coming east over Abu Dhabi. There’s no stronger grouping of airlines. We just did that strategically and looked five or ten years out. Strategically it’s game changing,” said Mr Hogan.

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