June 25 (Bloomberg) -- Alitalia SpA and Etihad Airways PJSC agreed the terms of a stake purchase giving the Middle Eastern airline 49 percent of the unprofitable Italian carrier and access to one of Europe’s biggest travel markets.
The two airlines will complete final documents, they said today. Etihad will invest about 560 million euros ($762 million) and create a company for Alitalia’s operating assets, said two people familiar with the matter. The carrier will pay about 400 million euros for the stake and will also buy a majority in the company that runs Alitalia loyalty program, said the people, who asked not to be named as the talks is private.
“It’s clearer and clearer that this marriage has to be done as it is an important industrial investment,” Italian Transport Minister Maurizio Lupi said in a statement. “We will meet unions to discuss job cuts.”
Alitalia had sought a new partner after Air France-KLM Group bowed out of a rescue brokered by the government last year. The airline has been unprofitable for years and is in the process of cutting thousands of jobs as its domestic market comes increasingly under attack from low-cost airliners and global carriers including Emirates, which services Milan.
Etihad declined to comment. No financial details of the investment were disclosed in a statement. The companies had announced months ago that they were in talks, and conclusion depends on regulatory approval, according to the release today.
European shareholders will own 51 percent of the new Alitalia, which will exclude the 2,200 employees that have already earmarked for redundancy, the people said. The new company will also be insulated from pending legal cases, they said, both preconditions set by Etihad to agree on a deal.
Etihad’s investment will add another stake in an airline to the growing list assembled by Chief Executive Officer James Hogan, who is building alliances around the globe to help funnel more traffic through his hub in Abu Dhabi.
Alitalia would be among Hogan’s biggest investments in a foreign airline. While not having outright control in the other carriers, the stakes give Etihad sway to improve management and strategy. At Air Berlin Plc, the German carrier struggling to emerge from losses, Etihad is participating in a financial rescue after the deficit piled up last year.
Etihad says its equity partnerships have helped deliver a wider network of 400 destinations. Buying a stake in Alitalia would let Hogan tap into a major economy in the heart of Europe with a large population that has attracted airlines including Dubai-based Emirates and low-cost carrier EasyJet Plc as they seek to capitalize on the local airline’s woes.
Etihad confirmed in December that it was in talks with Alitalia and in February said it would decide within a month whether to invest. Earlier this month, Alitalia’s supervisory board gave its backing for senior management to discuss an investment contract with Etihad.