Etihad to Become Air Berlin's Biggest Shareholder

Abu Dhabi-based Etihad Airways is to become the biggest shareholder in Air Berlin PLC with a stake of nearly 30 percent, giving Germany's troubled No. 2 airline a financial boost and the fast-growing Gulf carrier a foothold in Europe.

Etihad currently holds 2.99 percent of Air Berlin. The two companies said Monday that the stake would grow to 29.21 percent via a nearly euro73 million ($95 million) issue of new shares.

Etihad is to get two seats on Air Berlin's board of directors, and also is pledging to provide up to $255 million over the next five years to support fleet development and future network growth.

The announcement comes as Air Berlin, Germany's second-biggest airline after Deutsche Lufthansa AG, pushes through an efficiency drive following losses that it has blamed on high fuel prices, a new German aviation tax and sagging demand for travel to northern Africa.

Air Berlin said earlier this year that it plans to chop some routes and cut 18 aircraft from its fleet of 170 by next summer. Founder Joachim Hunold stepped down as CEO and handed over to Hartmut Mehdorn, a former chief executive of Germany's national railway.

"The strategic partnership with Etihad Airways opens up enormous opportunities for the future of our company," Mehdorn said Monday. "This applies especially to future market development and the realization of synergies."

The two airlines plan "extensive" code-sharing agreements and to connect their frequent flyer programs.

"This new partnership expands our network reach, gives us access to 33 million new passengers, and provides us with a real opportunity for global growth," Etihad CEO James Hogan said.

"Through Air Berlin, we gain immediate access to a broad and complementary European market," he said, adding that the airlines estimate they can each increase revenues by between euro35 million and euro40 million in the first year of the deal alone.

Air Berlin's main hubs are in Berlin - where a new airport is to open next year - Duesseldorf, Palma de Mallorca and Vienna. Its main focus is on European routes.

The airline plans to join the oneworld alliance, which includes American Airlines, British Airways and Spain's Iberia, early next year. Mehdorn said that "we do not see any conflict" between that and the Etihad agreement.

As part of the deal with Etihad, the German airline will start operating four flights a week between the German capital and Abu Dhabi in January. It also plans to shift its Middle East operations to Abu Dhabi from the nearby Emirati city of Dubai.

Air Berlin shares rose strongly on the news, up 7.8 percent to euro2.49 in Frankfurt trading.

Etihad's Hogan stressed that his airline doesn't plan to expand its stake in Air Berlin further.

"It's not on our agenda to take it any further; under European law, we can't gain greater control, and we don't intend to," he said at a news conference. "This is a partnership for two airlines to work the market more effectively."

Etihad is bankrolled by the oil-rich government of Abu Dhabi, the capital and largest of the United Arab Emirates. It has not yet posted a profit, but expects to break even for the first time this year. It began operations in 2003.

Etihad is younger and far smaller than Emirates, the Middle East's biggest carrier, which is based in Dubai.

The two carriers and another state-backed Gulf carrier, Qatar Airways, are increasingly challenging established European and Asian carriers by routing lucrative long-haul flights through the Gulf.

Etihad last week placed an order with Boeing Co. for 10 more of the manufacturer's new 787-9 planes, making it the largest airline customer for that version of the jet, with 41 orders on the books.