Documents show royal funding for Etihad

An Australian paper found that the loan for government-owned Etihad required no repayments until 2027

Abu Dhabi-based Etihad Airways had access to an interest-free $3 billion loan from the Abu Dhabi ruling family, the Australian Financial Review said on Thursday, stoking criticism from rivals that have long complained of state support for the carrier.

Citing what it said were leaked documents prepared for prospective financiers in 2011, the newspaper said the loan for government-owned Etihad required no repayments until 2027.

The airline, which also has equity stakes in Air Berlin and Aer Lingus, has long rejected allegations from rivals in Europe and Asia that it receives unfair financial support or state subsidies.

In a slide headed "Equity and Shareholders Loan," the document states: "The shareholder has provided significant loan facility for aircraft deposits and working capital - subordinated, interest free and no repayments until 2027."

Etihad, which has been looking at a possible investment in loss-making Alitalia, said in a statement it had received financial support from its shareholder in the form of equity capital and shareholder loans, but gets no government subsidy.

It said the airline operated under a strict commercial mandate. It did not specifically comment on the $3 billion loan mentioned in the report.

Etihad, along with other state-backed regional carriers such as Emirates and Qatar Airways, have been rapidly expanding their global reach, sometimes through partnerships.

Etihad is already a major shareholder in Virgin Australia Holdings, which has been engaged in a brutal price and capacity war with flag carrier Qantas Airways Ltd.

Qantas has long complained that Etihad and by extension Virgin, have benefited from subsidies from the Gulf state, something Etihad management has repeatedly denied.

The newspaper said industry sources had provided the document, which had circulated among the management ranks of Etihad's competitors, such as Qantas and Emirates.

The Australian and International Pilots Association said the claims of support from the royal family needed to be checked and action taken to level the playing field.

"Etihad's contribution to Virgin's A$350 million ($323 million) equity issue last year was critical to the issue's success. We now know this contribution was backed by the interest-free generosity of the Abu Dhabi royal family," said AIPA President Nathan Safe.

"Such an obviously unfair distortion of competition would never be allowed in any other sector of the Australian economy and it should not be allowed to continue in aviation."

Virgin Australia did not comment on the report.

European airlines, including Deutsche Lufthansa, have often spoken out against Gulf carriers saying their state-owned status meant they do not compete on a level playing field with privatised carriers.

Air Berlin, in which Etihad has a near-30 percent stake, declined to comment.

($1 = 1.0850 Australian dollars)