Etihad’s growth plans meet market uncertainty: Will the IPO way pay off?

Abu Dhabi: Etihad Airways has decided to delay its anticipated $1 billion initial public offering (IPO) until at least after the Eid al-Fitr holidays, sources familiar with the matter have confirmed to Reuters. While the airline and its owner, Abu Dhabi’s sovereign wealth fund ADQ, have not publicly committed to a specific date, reports previously suggested an announcement was expected last week of February, following the airline’s disclosure of a threefold profit increase.

If and when it happens, the IPO would mark the first major Gulf airline listing in nearly two decades. The company aims to sell 20 per cent of its shares to fund its expansion. However, the delay raises questions about whether global economic uncertainties and regional volatility are influencing investor sentiment.

Saj Ahmad, Chief Analyst at StrategicAero Research, said Etihad’s decision to postpone its IPO is unsurprising given the prevailing market conditions.

“There is enough regional and international volatility right now to put off investors. There is no doubt Etihad’s turnaround has been superb and is renewing its focus on growth, but it is clear that the timing to go public is not fixed,” explained Ahmad.

Ahmad also highlighted broader geopolitical risks that could impact investment sentiment across the Gulf region, including tensions in the Middle East, the Russia- Ukraine conflict, and potential policy shifts in the United States with a new administration.

Ahmad explained, “The UAE at large will still leverage its low tax and business-centric focus to pull in investment from overseas.” He added, “However, the bigger challenge is whether the wider political landscape across the GCC, Gulf, Middle East, Ukraine-Russia and a new US Administration complicates things with Trump’s desire to have businesses come to the USA or face punitive actions for not doing so.”

“That is something that no crystal ball can define with any degree of certainty, and I think, on balance, airline IPOs are probably better off on the back burner in the short term,” said Ahmad.

Despite these concerns, some analysts also believe the IPO could still be a strategically sound move. Michael Ashley Schulman, CFA and Chief Investment Officer at Running Point Capital Advisors, told Gulf News it is evident that both Etihad and Saudi-based low-cost carrier flynas (which plans to list 30 per cent of its shares) are pushing ahead with their respective IPO plans despite global economic headwinds.

Etihad’s net profit more than tripled to $476 million last year, driven by effective restructuring and ambitious expansion plans to reach over 125 destinations by 2030. These align with Abu Dhabi’s vision of becoming a leading global travel hub.

Flynas, which plans to list its shares on the Riyadh stock exchange, has also demonstrated strong financial performance, reporting a 32 per cent revenue increase to SR 6.3 billion in 2023. Schulman acknowledged risks such as supply chain disruptions and a potential global recession but argued that current business conditions remain favourable for IPOs.

“Given their positive financial performances and clear growth strategies, these IPOs could provide essential capital for further expansion. Investors may see these offerings as opportunities to participate in the burgeoning Middle Eastern aviation sector,” he added.

With airlines being a capital-intensive industry, raising funds before they are needed rather than after is crucial, explained Schulman. He added that having secured capital in advance could be a significant advantage if there is an economic slowdown and other airlines struggle.

“The risks of a US recession leading into a global recession are notable. That said, with current business conditions humming along, this could be an optimal time for the airlines to achieve solid relative value in an IPO, raise capital at fair valuations for investors (looking for an exit as well as those looking to get in), and use that capital to their advantage if there is an economic slowdown and other airlines go under,” said Schulman.

While the delay in Etihad’s IPO suggests caution, the airline’s strong financial performance and strategic vision position it well for future listing opportunities. The key question remains whether investors are willing to navigate the uncertainties in exchange for long-term gains in the Middle East’s aviation sector.

For now, Etihad’s decision to hold off signals prudence, but the eventual IPO remains a pivotal step in the airline’s ambitious growth trajectory. Investors will be closely watching how global conditions evolve in the coming months to assess the right time to enter the market.