Turnaround of Jat latest challenge for Etihad

Etihad's latest project will be the rebranding and general overhaul of the struggling Serbian carrier Jat Airways.

Eighteen months after coming to the rescue of struggling Air Seychelles, Etihad Airways now faces a similarly formidable task turning around another ailing carrier.

Jat Airways, a loss-making and little-known airline with ageing aircraft, would seem an uninviting partner for Etihad, boasting one of the youngest global fleets and improving profitability.

But the Abu Dhabi carrier yesterday announced it was taking a 49 per cent stake in Jat and would invest up to US$200 million jointly with the Serbian government to revive its fortunes. The airline will also be rebranded and renamed Air Serbia.

For Etihad, the deal fits into its strategy of increasing its share of the global aviation market by finding value in other, often, struggling airlines. Of its four sealed equity alliances to date, the latest bears the most resemblance to its 40 per cent investment in Air Seychelles, completed at the start of last year.

As with that carrier, Etihad has signed a five-year management contract for the Serbian airline and is committed to replacing its fleet, training its staff and adding routes. As with Air Seychelles, Etihad is also likely to have to strip down the business, including axing some staff.

But Etihad managed to steer Air Seychelles into the black last year. Two of Etihad's other equity alliance partners - airberlin and Virgin Australia - are also profitable, although a third, Aer Lingus, has reported first-half losses of €23.5 million (Dh114.3m).

Aleksandar Vucic, the deputy prime minister of Serbia, yesterday said the government was setting Air Serbia a 24-month deadline to become profitable.

The Serbian government has been seeking a buyer for the airline since the global financial crisis in 2008 as it tries to offload loss-making firms to ease pressure on state coffers. In March, Mladan Dinkic, Serbia's minister of finance, visited Abu Dhabi to seek interest from Etihad. As a sweetener, the government has reportedly offered to take on €170m of the airline's debt, pay leases for six new aircraft from Airbus and secure severance payments for some workers.

Even so, turning around Air Serbia would require "quite some work" from Etihad, said John Strickland, the director of aviation consultancy at JLS Consulting in the UK.

"It is an airline in need of investment and fleet renewal. It is also based in a part of Europe with economic problems," he said.

Yet for all the problems, Etihad senses opportunities. It expects demand from the Serbian diaspora scattered around the world.

"There's a huge Serbian community in Australia, we will also have connectivity through airberlin in Chicago as there's about 1.8 million Serbians living there and around 600,000 Serbians in Germany," said James Hogan, the president and chief executive of Etihad.

The investment also gives Etihad greater exposure through the Serbian airline in the Balkans and wider eastern Europe markets. At the same time, it can ferry international traffic from the region through its Abu Dhabi base.

"Over time, it will also give it some access to central Europe as well, and once Serbia enters the European Union, it will be another door to that market as well," said Andrew Charlton, the chief executive of Aviation Advocacy, a Geneva-based advisory firm.