Etihad In Final Stages of Alitalia Investment Analysis
Etihad Airways appears close to making a final decision as to whether or not to buy an equity stake in Alitalia. Speaking during a March 3 conference call about the Abu Dhabi-based airline’s latest quarterly financial results, CEO James Hogan confirmed that Etihad has entered the final stage of due diligence in evaluating the struggling Italian flagcarrier. Hogan recently met in Rome with Alitalia’s board and senior management team and Italy’s ministers of transport and finance. As always, said Hogan, a decision on whether or not Etihad will proceed will hinge on network compatibility, potential for profitability and the quality of the acquisition target’s management team. Although he hesitated to offer any clues about the outcome of the analysis, Hogan spoke in relatively positive terms about the potential strong network relationship between Alitalia in the south of Europe, Etihad equity partner Air Berlin in the north of Europe and Etihad itself with a strong base in the Arabian Gulf.
“In every investment we look at, we first look at the network…are there network flows? Now within Alitalia, within Italy, it’s the third largest outbound market from Europe…At the same time they have a strong relationship with Air France and KLM, and so do we,” said Hogan. “So when we look at top line and network, we do see an opportunity to collectively improve the network.”
On the potential for Etihad to return the ailing Alitalia to profitability, Hogan suggested that the still incomplete due diligence process would inform him of the probabilities. “We have not committed in any form to invest or not,” said Hogan. “But if one takes a small example of Air Seychelles…they were close to going out of business [before Etihad took its 40-percent stake in January 2012]. They lost, in 2011, in excess of $25 million; in 2012 they made a $1 million profit; and in 2013 they’ll announce a profit.”
Hogan wouldn’t comment on any details of any remaining sticking points in its negotiations with Alitalia, however, citing restraints inherent to any ongoing due-diligence process. “We were very clear on what we would expect as investors; we were very clear to understand how they consider the airline could be restructured; and we’re working through that accordingly,” he said. “We have to be convinced as an investor stepping in that we can move the airline back to profitability and that’s the work we’re undertaking at the moment in conjunction with the Alitalia management team.”