Etihad Airways PJSC has no plans to take a stake in Deutsche Lufthansa AG, though the carriers are exploring the possibility of expanding their recent cooperation agreement, according to James Hogan, the Persian Gulf company’s chief executive officer.

Asked Wednesday if Abu Dhabi-based Etihad intends to acquire a holding in Lufthansa, Hogan replied “no,” rejecting an Italian newspaper report. The CEO, who spoke on the sidelines of a conference in Dublin, said the companies are instead discussing the deepening of a code-share deal announced last month.

Lufthansa shares had their biggest intraday jump in almost three months Tuesday after Il Messaggero said “high-level talks” were underway that could see Etihad buy as much as 40 percent of Europe’s third-biggest airline via a capital increase. The stock traded down 2.6 percent following Hogan’s comments and was priced 0.6 lower at 11.73 euros as of 3:17 p.m. in Frankfurt.

Lufthansa and Etihad in December agreed to share seat sales on four routes in the wake of a separate accord that will see the German carrier lease 38 aircraft from rival Air Berlin Plc, which is 49 percent owned by the Gulf company and struggling with mounting losses.

Hogan said Etihad remains “committed” to its so-called equity alliance, which has involved taking minority stakes in a range of often struggling carriers worldwide, including Air Berlin and Alitalia SpA.

‘Tough Conditions’

The strategy has produced cost synergies and added “hundreds of millions of dollars” to Etihad’s revenues by helping to fill its planes, Hogan said, while arguing that “a longer-term view” needs to be taken of its limited success in reshaping the carriers it has invested in, given that ownership caps mean ultimate control still remains in local hands.

Though Jet Airways India Ltd., Air Serbia, Air Seychelles, Virgin Australia and Switzerland-based Etihad Regional have become profitable operations, Etihad has encountered “greater challenges” at Air Berlin and Alitalia, which face “very tough operating conditions,” the CEO said.

Alitalia, which has also been linked to a possible combination with Lufthansa, requires an “Italian solution,” he said. The CEO and executives from the Rome-based company met with Italian ministers Jan. 9 to discuss the latest cash crisis and agreed to submit “a detailed industrial plan” within weeks.

Etihad also recently invested 100 million euros ($107 million) as capital in Alitalia and converted a bond into “semi-equity” he said.

Ownership Cap

Hogan said in Dublin that Air Berlin needed “radical change” from the start, while arguing that it, like Alitalia, is now “back on track” following the deal with Lufthansa and another to provide aircraft to TUI AG.

Hogan said it’s time for ownership rules to be scrapped to allow outside companies to take majority holdings in airlines to ease access to capital. Within the European Union the cap bars foreign operators from owning more than 49 percent of the bloc’s carriers and has curbed Etihad’s ability to run both Alitalia and Air Berlin.

The rule would also limit any Etihad stake in Lufthansa, even if it wanted one, especially since a 30 percent investment would trigger a mandatory takeover bid under German law that would in turn jeopardize route rights.

–With assistance from Deena Kamel Yousef

©2017 Bloomberg L.P.

This article was written by Benjamin Katz from Bloomberg and was legally licensed through the NewsCred publisher network.

Photo Credit: Etihad CEO James Hogan has denied a report that his company seeks a stake in Lufthansa. Reuters / Ralph Orlowski