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Etihad Sets 30-Day Deadline to Decide on Alitalia Investment

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Etihad Airways CEO  James Hogan
James Hogan, chief executive officer of Etihad Airways PJSC, listens through headphones during a joint news conference with JAT Airways in Belgrade, Serbia, on April 15, 2013. Photographer: Oliver Bunic/Bloomberg

Feb. 3 (Bloomberg) -- Etihad Airways PJSC said it will decide within 30 days whether to buy a stake in ailing Italian airline Alitalia SpA as the Abu Dhabi flag carrier continues its streak of purchases to funnel traffic through the Middle East.

Etihad is in the final stage of reviewing Alitalia SpA’s books to decide on an investment, Chief Executive Officer James Hogan and his Italian counterpart Gabriele Del Torchio said yesterday. Italian Prime Minister Enrico Letta, speaking yesterday in Abu Dhabi, said his government, which has helped prop up Alitalia, wouldn’t impose conditions for an agreement.

“This would definitely be a shot in the arm for a carrier that has struggled for a while now,” said Sidanth Rajagopal, a Dubai-based partner at Clyde & Co. “Getting the best practices of Etihad and the money will be good for the airline.”

Buying a stake in Alitalia would let Hogan tap a major Western European economy that has attracted airlines including Emirates and low-cost carrier EasyJet Plc as they seek to capitalize on the local airline’s woes. Air France KLM-Group, previously Alitalia’s biggest shareholder, declined to support a capital increase last year after losses ballooned at the Italian partner and a turnaround effort failed to bear fruit.

Lufthansa Objections

Deutsche Lufthansa AG urged the European Commission to block repeated subsidies of European airlines and their partial nationalization, including through state-owned foreign rivals, the German carrier said in a statement today. It called on European governments to assure a level competitive playing field.

Etihad, Alitalia and their advisers are working on a joint strategy, according to a statement. Italy “will do all it can” during the 30 days to support an Etihad-Alitalia deal, said Letta, who is in the Persian Gulf for several days.

Etihad, which made a series of minority investments in carriers spanning Ireland to Australia as part of its growth strategy, declined to provide details of a possible investment. The company had previously said that the two sides were talking.

Any issues that may prevent establishing an appropriate business plan “will have to be resolved to ensure the plan can be implemented to move Alitalia to sustainable profitability,” it said in a statement.

Cash Contribution

Etihad is considering a cash contribution of about 300 million euros ($405 million) to unprofitable Alitalia, people familiar with the talks have said.

Air France, which owned 25 percent of Alitalia, late last year declined to invest further when Alitalia was seeking to raise funds, saying the Italian carrier hadn’t met its conditions. Air France declined to comment on Etihad’s announcement.

Etihad has bought a 24 percent stake in India’s Jet Airways and a 49 percent stake in Air Serbia. The carrier increased its stake in Virgin Australia by 10 percent. It also holds a 29 percent stake in Air Berlin, 40 percent of Air Seychelles, 3 percent of Aer Lingus, and recently added a stake in a Swiss regional carrier.

“It’s a good opportunity for Etihad to establish a European presence,” said Rajagopal. “It has a stake in Air Berlin and a Swiss-based airline, but a full service legacy carrier would be great for Etihad as well.

‘‘Alitalia was a great airline though it has gone through tough times. I’m sure Etihad has done its homework.’’

To contact the reporter on this story: Deena Kamel Yousef in Dubai at dhussein1@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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