June 2 - Etihad Airways has agreed terms for investing in Alitalia as the Abu Dhabi carrier expands in Europe. As Ciara Sutton reports the deal should give the loss-making airline the financial stability it needs.
It already has stakes in Air Berlin and Aer Lingus. Now Etihad is expanding further in Europe. It's set to invest in struggling airline Alitalia. The Abu Dhabi carrier has finalised its terms for the deal, which is awaiting approval from Alitalia's stakeholders. The prospect of job cuts at Alitalia as well as its debt of at least 800 million euros had been hurdles in the talks. It could invest more than 500 million euros in exchange for a 49 percent stake in the Rome-based airline. Olaf Storbeck is from Reuters Breakingviews. (SOUNDBITE) (English) OLAF STORBECK FROM REUTERS BREAKINGVIEWS "Etihad doesn't think in quarterly or yearly financial revenue, so they are not there to make a profit for shareholders in the short term. But it's a device of economic policy of the Abu Dhabi government, it's a device of economic restructuring of the Gulf countries." The airline industry has struggled in recent years with soaring costs. And unlike international waters the skies are subject to complex regulation, limiting market access. On top of that there are tight controls on foreign ownership, making it hard for airlines to join forces. Some have found ways of getting round the curbs - by forging global alliances and setting up revenue-sharing ventures. (SOUNDBITE) (English) OLAF STORBECK FROM REUTERS BREAKINGVIEWS "The stakes have been distributed already. So most other profitable airlines are part of other alliances and can't team up with Etihad. So they are taking up what's left on the table. Those are mainly loss-making airlines and they need financial lifelines from Etihad to stay afloat." Global airlines are set to make 13 billion dollars this year. But margins remain thin and the industry has rarely if ever covered its cost of capital.