Rome: Etihad Airway’s latest move to turn around Italy’s Alitalia will come under the watchful eyes of European regulators, who are already looking at the Abu Dhabi carrier.

Etihad said on Friday it has signed a €560 million (Dh2.7 billion) deal that includes a 49 per cent stake in Italy’s Alitalia. The equity stake is costing the Abu Dhabi airline €387.5 million.

Asked how the airline is funding the investment, Etihad Airway’s President and Chief Executive James Hogan said on Friday the money is coming “from Etihad.”

European regulators will check whether the deal comes under rules regarding foreign investment. The European Commission is already looking at Etihad’s nearly 30 per cent stake in Air Berlin.

In order to obtain an operating license in the European Union as a European airline, an airline must be more than 50 percent owned and "effectively controlled" by an EU member state or EU citizens.

Gabriele Del Torchio, Alitalia chief executive, said on Friday the deal does not violate European rules.


The Commission previously asked Italy to be vigilant in Alitalia's negotiations with Etihad, according to reports.

Etihad also owns portions of Aer Lingus and Air Serbia and is awaiting approval on a stake in Swiss carrier Etihad Regional (formerly Darwin Airline).

Hogan, announcing the confirmed tie up with Alitalia on Friday, said Etihad complies with European Union requirements.

Control

Pressed by the media on the ownership structure - Etihad will be the largest single shareholder in Alitalia - Hogan affirmed that control of the airline will stay in the hands of Alitalia management.

However, he declined to comment specifically on the possibility of Etihad engineered senior management changes at Alitalia or how many seats the Abu Dhabi carrier will take on the board of the Italian airline.

"Certainly, there will be changes ... we're coming back with the human resources team and the Alitalia team at the end of September," he said.

Former Etihad employees have taken up senior positions at a number of the airlines it holds stakes in. A former employee is the chief financial officer at Etihad Regional and chief executives at Jet Airways and Air Serbia are former employees too. Etihad has a management agreement for the latter.

Etihad’s latest equity stake investment, the eighth globally, is likely to be met with criticism from competitors. European rival Lufthansa has in the past lashed out at Etihad’s ability to use money from its shareholder and backer, the Abu Dhabi government, to get significant stakes in several airlines. Hogan has hit back at the claims from his rival, firmly pointing to Lufthansa’s own group of airlines, which include Swiss and Austrian.

For Alitalia, the cash injection that comes with the deal will mean that it is able to focus on higher margin long-haul flights after struggling to compete with low cost carriers and high speed rail in the domestic and regional market.

Hogan declined to state the new routes but confirmed that many of the short-haul loss making routes will be axed. He also declined to rule out the possibility of an Etihad operated Abu Dhabi-United States via Italy route, but said it was unlikely. Emirates operates a stand alone Milan-New York route, which connects with Dubai, which has come under scrutiny with European and American competitors opposing the route.

Under the deal, Alitalia’s image will undergo a major overhaul starting early next year, Del Torchio said. The name is set to stay, but the cabin crew uniforms and livery will be changed.

The re-branding exercise is likely to coincide with a heavy marketing campaign outlining the new image.

Del Torchio said the deal means “a lot” for Alitalia and “a lot” for the Italian economy, which entered its third recession since 2008 earlier this week.

This reporter traveled to Rome courtesy of Etihad Airways.

This article was first published in the Saturday August 9 edition of Gulf News