Etihad Chief Considering More Purchases, Examines Aer Lingus

Etihad Airways, the Middle East’s third-largest carrier, said it’s mulling further purchases after investing in Air Berlin Plc (AB1), with Aer Lingus Group Plc (AERL) of Ireland one of the companies that’s being monitored.

Abu Dhabi-based Etihad is “looking at a range of carriers” and would seriously consider one or two global opportunities to help feed its network, Chief Executive Officer James Hogan said today in an interview, adding that there are no advanced talks.

“We don’t enter an agreement to bail somebody out, we enter into an agreement to improve our top line and revenue and take out more cost,” Hogan said. “With Aer Lingus we have looked at top line, but haven’t entered into any advanced negotiations.”

Etihad’s most important growth driver this year will be its increased 29.2 percent holding in Air Berlin, acquired for $350 million in equity financing and funds for planes, Hogan said, with the German discount carrier likely to contribute $50 million in revenue. The Gulf company, which posted its first full-year profit today, also has a 40 percent stake in Air Seychelles Ltd. following a $45 million deal last month.

Ireland’s government said today after Hogan’s comments that there has been “strong interest” in its 25 percent stake in Aer Lingus and that all approaches will be considered in the event of a formal decision to sell. A disposal would be part of a drive to raise 2 billion euros ($2.6 billion) from state assets to help satisfy commitments to the International Monetary Fund.

Shares Gain

Aer Lingus jumped 6.7 percent before closing 5.2 percent higher at 93.6 cents in Dublin, valuing it at 496 million euros. The six-stock Bloomberg EMEA Airlines Index fell 0.5 percent and Ireland’s 50 member ISEQ Overall Index advanced 0.4 percent.

“The future of the government’s stake is entirely a matter for the shareholders,” Aer Lingus spokesman Declan Kearney said.

John Carroll, a government spokesman, said on Jan. 6 that there was no plan to sell to Etihad after transport minister Leo Varadkar arranged to meet with Hogan on “tourism matters.”

Etihad’s investment criteria include a like-minded management and the ability to cut costs and achieve network integration, Hogan said today, adding that Air Berlin, Europe’s third-biggest low-cost operator, was tracked for three years.

“We monitor, we discuss these opportunities with the board,” the CEO said. “With Air Berlin it gives us a fantastic feed out of Germany, Switzerland and Austria. The premise is it has to feed and integrate with our network.”

Virgin Australia Interest

Etihad has a “very strong” commercial relationship with Virgin Australia Holdings Ltd. (VAH) and would “seriously consider” opportunities to deepen ties should that be possible, said Hogan, who was born in Melbourne. Foreign stakes in Australia’s international airlines are limited to 49 percent, according to the country’s trade commission. A call to Virgin Australia was unanswered today outside of office hours.

Etihad is not looking at acquisition opportunities in India “at the moment,” the CEO said at a press briefing. A proposal to relax foreign ownership there is awaiting cabinet approval after aviation and finance ministries recommended a 49 percent limit.

The Gulf carrier posted net income of $14 million for last year, exceeding a target of breaking even, with sales 36 percent higher at $4.1 billion. A cost-reduction program shaved $187 million from expenses, the company said in a statement. Earnings before interest, tax, depreciation, amortization and rentals were $648 million, and Ebit was $137 million.

Higher Frequencies

Hogan said in the interview that the state-owned carrier is targeting revenue of about $5 billion this year, including $700 million from cargo. The passenger total should reach 10 million, he said, 1.8 million more than in 2011, with “a corresponding increase in profits,” as costs are reduced by 4.6 percent.

Etihad hedged more than 80 percent of its fuel costs last year, helping protect it from volatility in oil prices, and has a 75 percent hedging plan in place for 2012, it said.

The airline, which competes in the Gulf with Dubai-based Emirates, the world’s biggest airline by international traffic, and Doha’s Qatar Airways, has been expanding its global presence via new routes and planes, as well as stakes in other airlines.

Etihad, which ordered 100 aircraft at the 2008 Farnborough Air Show, will receive a “considerable” number of planes starting in 2014 and these will be used largely to add frequencies to existing destinations, with plans to boost services to the Americas, Europe and Southeast Asia, Hogan said.

In about a week’s time, Etihad will meet with bankers in New York to help satisfy fleet-financing requirements, he said, adding that there are no near-term plans to issue bonds or Islamic sukuk. A similar event will be held in London.

To contact the reporters on this story: Tamara Walid in Dubai at twalid@bloomberg.net; Finbarr Flynn at fflynn3@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Colin Keatinge at ckeatinge@bloomberg.net

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