Etihad Airways yesterday backed airberlin’s efforts to return to profitability after its German affiliate swung to a loss last year.
Airberlin said it would implement structural changes to its business. It has also appointed a chief restructuring officer for the job.
The German carrier yesterday reported a loss of €231.9 million (Dh1.18 billion) last year, after making a profit of €90m in 2012. Earnings were affected by a slow outbound summer season, combined with tough competition in its domestic market and a weak European economy.
European peers have also been suffering, with Ryanair in February reporting losses in the final three months of last year.
Yesterday Etihad said it would subscribe to a €300m convertible bond to support airberlin. The bond will be part of a “recapitalisation which is intended to strengthen and assist in the reorganisation of airberlin’s capital structure”, the Abu Dhabi carrier said.
Etihad said its stake in airberlin would remain at 29.2 per cent.
Airberlin will also issue a further bond of a minimum of €150m for general corporate financing purposes.
“Each additional measure of financial support makes it much more difficult to say no to the next time airberlin needs help,” said Will Horton, a senior analyst at the Sydney-based Centre for Aviation (Capa). “Etihad has already put in enough support that it can’t, or at least shouldn’t, walk away. These are long-term strategies, but the payback period, if it does eventuate, is becoming increasingly longer.”
James Hogan, the president and chief executive of Etihad said that airberlin is in “a very challenging position”. He said he believed that the business could be turned around, that it was “moving in the right direction”, but that it needed “accelerated and fundamental restructuring”.
“With the right strategic vision, and the right implementation, Etihad Airways believes airberlin can become a sustainably profitable business,” added Mr Hogan.
The airberlin stake acquisition in 2011 gave Etihad access to the tightly restricted German market. The airlines now operate 56 flights per week between Germany and Abu Dhabi. At the time of the deal, Etihad operated 25 flights per week to three destinations in the country.
“Today the picture is very different and Germany is at the centre of our European network,” said Mr Hogan.
Etihad said that Germany had taken the United Kingdom’s position as its largest outbound European market. Airberlin is the biggest contributor of passengers to the Abu Dhabi carrier’s global network. Last year the carriers delivered 560,000 passengers on to each other’s networks, Etihad said.
Saj Ahmad, the chief analyst at StrategicAero Research, said that the partnership was paying off “but airberlin doesn’t seem to be gaining financially and it’s that which needs addressing as well as its poor pan-European performance”.
Etihad’s growth strategy has relied heavily on expanding its route network through “equity alliances”, in which it invests in carriers that help it to expand its global reach in strategically important regions.
Last year, Etihad grew its equity alliance to seven – comprising Air Seychelles, airberlin, Virgin Australia, Air Serbia, Aer Lingus, Jet Airways and Etihad Regional, formerly known as Darwin Airline.
Etihad’s 40 per cent investment in Air Seychelles helped the carrier to triple its profits in the period. The carrier’s net profit was up 171 per cent to US$3m from $1.1m a year earlier.
Etihad acquired a stake in Air Seychelles in 2012, in a deal worth $45m. It has since turned a profit for two consecutive years after Etihad took over management of the struggling carrier, which had repeatedly changed chief executives in a short period and suffered back-to-back losses.
Etihad this month reported a 27 per cent increase in first-quarter revenue to $1.4bn as contributions from its equity partners rose 23 per cent.
The airline’s codeshare and equity partners contributed $223m compared with $182m in the same quarter last year.
selgazzar@thenational.ae
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