Upstart Etihad becomes ally to European carriers

Just a few years ago, James Hogan, the chief executive of Etihad Airways, probably would have had trouble scoring a meeting with one of his European counterparts. These days, however, it seems he's never been so popular.

Like its larger Persian Gulf rivals - Emirates of Dubai and Qatar Airways - Etihad, of Abu Dhabi, once faced stiff resistance from established flag carriers. The big European airlines like Lufthansa, British Airways and Air France-KLM lobbied their governments to restrict the fast-growing Gulf carriers' access to European airports for fear of losing market share on lucrative long-distance routes, particularly to Asia and West Asia. They also argued that Etihad and its peers, backed by deep-pocketed governments and not burdened with outdated terminals, airport taxes and rigid wage schemes, enjoyed an unfair advantage that European airlines could never match.

That attitude changed as Europe's protracted economic crisis erased billions in airline profits and wiped out thousands of jobs. Some of the region's weakest carriers are now reaching out for a financial lifeline, which reduced the industry's protectionist impulses.

These days, instead of being viewed as a predator, Hogan increasingly finds himself welcomed as a partner - even as a potential saviour. Central to this change of heart, analysts say, has been a dawning appreciation of Hogan's unique strategy for expanding the global reach of Etihad, which is wholly owned by the government of Abu Dhabi, the capital of the oil-rich United Arab Emirates.

Flush with Abu Dhabi's wealth, over the last two years Etihad has spent more than $1 billion buying equity stakes and lending cash to half a dozen struggling airlines on three continents, building what Hogan calls an "equity alliance" to complement Etihad's existing network of shared-ticketing agreements with more than 40 carriers. In terms of its overall passenger carrying capacity, Etihad is still dwarfed by both of its gulf rivals, as well as most major airlines in the US, Europe and Asia. But Etihad's emerging status as a go-to financier has helped raise its global profile. "There have been various cross-border acquisitions in the airline industry over time, but nothing like this," Craig Jenks, an independent airline consultant in New York, said of Etihad's strategy. "It is quite distinctive and a radically new way for an airline to position itself in the global marketplace."

Etihad embarked on its equity-investment strategy in Europe at the peak of the euro crisis in late 2011, sweeping in to buy a 29 per cent stake in Air Berlin, an unprofitable German carrier that was more than $600 million in debt. One month later came the purchase of a 40 per cent stake in Air Seychelles, a struggling state-owned airline serving the remote island in the Indian Ocean.

That was followed last year by a three per cent stake in Aer Lingus of Ireland and a modest investment in Virgin Australia that has since grown to 17.4 per cent. This spring, Etihad announced a $600 million deal with Jet Airways of India for a 24 per cent stake and access to Jet's coveted takeoff and landing slots at Heathrow Airport in London. In August, it snapped up a 49 per cent stake in Serbia's national carrier, Jat, joining forces with Belgrade to inject $100 million into the unprofitable airline that it plans to re-brand as Air Serbia in November.

Hogan has hinted that Etihad has an appetite for still more. "We don't have a shopping list," Hogan said in a recent interview in Paris. But "we invest where we feel we can achieve a strong commercial agreement and work together on cost synergies".

During a late-September trip through Europe, Hogan found himself besieged with questions over his next move. Media reports speculated that Etihad was considering an investment in Alitalia, the troubled Italian flag carrier. (For now, Etihad's code-sharing partner, Air France-KLM, which already owns 25 percent of Alitalia, is the only airline that has expressed any willingness to consider such a deal.)

© The New York Times News Service