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Despite stalled growth in China, Brazil and Russia, a wave of newly middle-class travelers from the BRICs and beyond will start visiting international destinations in the coming decades — dwarfing the numbers we’ve seen thus far.
The transaction will broaden Etihad’s foothold in Europe and provide stable funding for the failing Italian airline — a win-win for both carriers.
Etihad Airways PJSC said it set conditions for an investment in Alitalia SpA that would give the flag carrier of the United Arab Emirates another foothold in a major European economy.
Etihad will send a letter including criteria that Alitalia’s board will have to approve before final talks between the two airlines get started, according to a joint statement today. The airlines didn’t specify the conditions.
Under Chief Executive Officer James Hogan, Etihad has embarked on an purchase spree of stakes in second-tier airlines, assembling a group with interests from Germany to Serbia to the Seychelles and Australia. Hogan has said the strategy gives him access to passenger flows that he can direct through Abu Dhabi, where Etihad is competing with neighboring airlines Qatar Airways and industry leader Emirates.
“We are confident that we will reach a positive conclusion of the transaction submitted to Alitalia,” Hogan said in the statement. A stake in Alitalia will help both airlines and will widen options for travelers from and to Italy, he said.
An investment will make Etihad the biggest shareholder in the historically unprofitable Italian airline, which received a government-sponsored bailout last year, people familiar with the matter said in April.
Etihad and Alitalia said they will prepare the final documents for a deal after Alitalia’s board approves Etihad conditions. A tie-up with Etihad will secure Italian airline’s financial stability, Alitalia CEO Gabriele Del Torchio said in the statement.
Alitalia has sought a new major investor after Air France- KLM Group backed out of a capital increase, ceding its role as the largest shareholder. The Italian government helped stitch together a new alliance of supporters that include the Italian postal service to help prop up the carrier that’s failed to report a profit in years.
The Italian market is attractive to airlines because of its large population and its geographic location. Emirates and low- cost carriers including Easyjet Plc have sought to capitalize on Alitalia’s woes by expanding their reach into the country, with Easyjet building up more bases in Italy.
Etihad, the smallest of the major three Middle East carriers, confirmed in December that it’s in talks with Alitalia. Owning a stake in Alitalia would add to Etihad’s investments in Air Berlin Plc, Air Seychelles Ltd., Air Serbia, as well as carriers in India, Switzerland and Australia.
Hogan’s strategy runs counter to common practice in the global airline industry, which typically leans toward alliances such as oneworld or Star Alliance that share routes and passengers and stop short of outright equity investments.
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