Bloomberg News

Etihad Nears Jet Stake Decision as Investments Bolster Earnings

February 04, 2013

Etihad Airways PJSC, the third- largest Gulf carrier, said it’s closing in on the purchase of a stake in Jet Airways (India) Ltd. after investments in four other carriers helped triple full-year profit.

Abu Dhabi-based Etihad’s board will decide whether to go ahead with the bid after completing due diligence in the coming two weeks, Chief Executive Officer James Hogan said today. Net income hit $42 million in 2012 and will gain this year, he said.

Etihad is targeting Jet as it builds what Hogan called an “equity alliance” that already includes minority stakes in Air Berlin Plc (AB1), Virgin Australia Holdings Ltd., Aer Lingus Group Plc (AERL) and Air Seychelles Ltd. Etihad, which ranks behind Dubai-based Emirates and Qatar Airways Ltd. in terms of traffic, said the grouping collectively has 379 aircraft and serves 384 routes.

“No Middle East carrier has this reach,” Hogan said on a conference call. “By investing in other airlines we have been able to achieve scale and collectively reduce our unit cost.”

Sales gained 17 percent to $4.8 billion last year, with revenue from partners contributing about $620 million, a 42 percent increase, Hogan said. Etihad has 41 code-share allies, up from 29 a year earlier, including Air France-KLM Group (AF), with which it signed a strategic accord in October.

Indian Potential

Emirates, the world’s biggest international airline, is pursuing a more independent approach, and Etihad also has more partners than Qatar Air, though the Doha-based company has agreed to join the Oneworld group led by British Airways.

Hogan said there’s enough traffic to support all three carriers, which rely more on passengers changing planes for onward destinations than visiting the Gulf itself. He cited Bangkok and Kuala Lumpur and London, Paris and Amsterdam as examples of transfer hubs that are competing successfully.

The combined market of the Gulf Cooperation Council and Indian subcontinent is also “huge,” Hogan said, with 40 million Indians travelling overseas each year. The CEO visited New Delhi last week for talks with the government on Jet and foreign direct investment and said today those discussions went well.

“Over the next two weeks we will continue to work through our due diligence and see if we take this step,” he said, declining to specify how big the stake might be.

Fleet Savings

Savings from partnerships are being generated via measures including jointly managing aircraft, as Etihad and Air Berlin plan to do for future Boeing Co. (BA:US) 787 fleets, having already struck a joint deal with engine supplier General Electric Co.

Hogan said electrical faults that have grounded the Dreamliner for more than two weeks will be overcome and that it will prove to be “a great aircraft.”

At Air Seychelles, which was unprofitable in 2011, management functions have been transferred to Abu Dhabi, cutting costs, and the carrier will break even this year, he said.

Hogan said Etihad’s own expansion will continue, with four destinations to be added this year plus 15 more aircraft, out of about 100 planes that are due to arrive in the next seven or eight years. Both traffic and the passenger total rose 23 percent in 2012, with the latter reaching 10.3 million.

Planes due for delivery this year require $1.5 billion in financing, of which about $1 billion has already been raised to pay for nine long-haul aircraft, the CEO said.

A request for proposals covering the remaining $500 million, which will mainly fund Airbus SAS A320 short-haul planes, will be issued before April, according to Chief Financial Officer James Rigney, who said Etihad isn’t planning a bond issue and would prefer terms such as finance leasing.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net; Mahmoud Kassem in Abu Dhabi at mkassem1@bloomberg.net

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


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