Skip to main content

Etihad's new challenge: Fixing loss-making Alitalia

By John Defterios, CNN
June 25, 2014 -- Updated 1626 GMT (0026 HKT)
STORY HIGHLIGHTS
  • Abu Dhabi carrier Etihad agreed to a 49% stake in Italian loss-making airline Alitalia
  • It is the biggest foreign stake of a European carrier, taking it to the limit set by EU
  • Italian officials have indicated that Alitalia is losing about $1.6 million a day

Editor's note: John Defterios is CNN's Emerging Markets Editor and anchor of Global Exchange, CNN's business show focused on the emerging and BRIC markets. Follow John on Twitter.

(CNN) -- Fast growing Abu Dhabi carrier Etihad is spreading its wings again by agreeing to a 49% stake in Italian loss-making airline Alitalia.

The two parties put out a brief, joint statement which said they agreed to "principal terms," although the financial details were not disclosed.

When the Alitalia board gave a green light to the offer on June 15, Italy's Transport Minister Maurizio Lupi said that Etihad would make an upfront investment of $760 million and would commit to another $700 million by 2018. There are reports this could be even higher.

John Defterios
John Defterios

This represents the biggest foreign stake of a European carrier, taking it to the 49% limit set by European Commission. Etihad becomes the biggest shareholder.

Etihad is expected to cut up to 2,200 jobs as part of the agreement. The company also want to ensure Etihad will not carry an unfair burden of Alitalia's $1.3 billion in debt.

Alitalia's unionized staff have resisted deep cuts over the past decade even though losses continued to mount for the flag carrier.

Airline offers mini-apartments in the sky
Billion-Airs: The rise of Gulf carriers

The Italian government along with two major banks, Intesa Saopaolo and UniCredit, stepped in with a $680 million recapitalization in 2013.

This reduced the stake of Air France-KLM, which had no desire to pump more money into the operation, to 7%.

Italian officials have indicated that Alitalia is losing about $1.6 million a day, well over a half billion dollars a year.

In April, Italy's Finance Minister Pier Carlo Padoan told me it was important for the government of Prime Minister Matteo Renzi to consummate this transaction as a signal the country is open for business.

This deal represents the latest move by the Abu Dhabi carrier and its CEO James Hogan to build its network to more than 400 destinations.

It has taken positions in seven carriers including Air Berlin, Air Serbia and Aer Lingus in Europe.

It has also looked East, with stakes in stakes in Jet Airways of India and Virgin Australia.

Etihad would not comment beyond its joint-statement, but Hogan spelled out his strategy during our interview at the Dubai Air Show last November.

"Having that network offering is key. But why do we all have to duplicate our overhead?" Hogan said.

He pointed to the need for "centers of excellence" with the "lowest unit cost, whether it's reservations, whether it's part of training. Cost reduction is as important as exceeding customer expectation."

The challenge for Hogan is proving his team can turn around loss-makers like Air Berlin and Alitalia, while also picking up passengers for Etihad.

Read more from John Defterios: Iraq's 'new reality' shakes global oil markets
Read more: Etihad Airways to offer live inflight sports action

ADVERTISEMENT
Part of complete coverage on
August 18, 2014 -- Updated 1236 GMT (2036 HKT)
Europe's deteriorating relationship with Russia has hit the region's growth, even before new food sanctions begin to bite.
July 16, 2014 -- Updated 1634 GMT (0034 HKT)
With cyberattacks on the rise and here to stay, it's a modern-day challenge for people and businesses to get smarter about preventing them.
August 14, 2014 -- Updated 1324 GMT (2124 HKT)
Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
July 20, 2014 -- Updated 1524 GMT (2324 HKT)
Evidence points to pro-Russian separatists as perpetrators of the attack and Vladimir Putin is facing uncomfortable questions, David Clark writes.
August 5, 2014 -- Updated 1440 GMT (2240 HKT)
The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.
July 3, 2014 -- Updated 0902 GMT (1702 HKT)
Macau has overtaken Switzerland in the wealth stakes, being named the world's fourth richest territory by the World Bank.
July 18, 2014 -- Updated 1447 GMT (2247 HKT)
Saudi Arabian Bateel brand is best known for its delectable dates but it now has more than a dozen cafes and a new bakery in the works.
July 17, 2014 -- Updated 1100 GMT (1900 HKT)
A British nanotech company has created what it says is the world's darkest material. It is so dark the human eye can't discern its shape and form.
July 16, 2014 -- Updated 1602 GMT (0002 HKT)
Jibo robot is designed to be an organizer, educator and assist family members. CNN's Maggie Lake met him and says she was impressed with his skills.
July 18, 2014 -- Updated 2109 GMT (0509 HKT)
American burger joints have sprung up all over London, but how to know which ones are best? CNN's Jim Boulden investigates.
June 18, 2014 -- Updated 1222 GMT (2022 HKT)
Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
June 18, 2014 -- Updated 1502 GMT (2302 HKT)
At the last football World Cup, it was all about 3D. This time around, it's nothing less than 4K.
July 16, 2014 -- Updated 1058 GMT (1858 HKT)
Bob Mazzer has photographed inside London's Tube network for 40 years. He's captured history.
July 18, 2014 -- Updated 1712 GMT (0112 HKT)
Exotic animals are becoming a profitable business opportunity for Nicaraguan entrepreneurs. CNN's Rafael Romo reports.
June 13, 2014 -- Updated 1529 GMT (2329 HKT)
Iraq produces 3.3 million barrels per day and has the world's fourth-largest oil reserves. But the current crisis is putting all this in danger.
June 18, 2014 -- Updated 1222 GMT (2022 HKT)
Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
June 16, 2014 -- Updated 1314 GMT (2114 HKT)
The gas standoff between Russia and Ukraine could have a knock-on effect on Europe. Explore this map to find out why is the EU nervous.
July 16, 2014 -- Updated 1058 GMT (1858 HKT)
Bob Mazzer has photographed inside London's Tube network for 40 years. He's captured history.
June 17, 2014 -- Updated 1206 GMT (2006 HKT)
The UK capital promotes its tech stars and shows it can compete with Silicon Valley. Here are five companies that pitch to make it big.
ADVERTISEMENT