8/12/2019 Finance Etihad
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2012 |The Airline Strategy Awards|11flightglobal.com/ab
Etihads investment in Air Berlin was seen by
the judges as a win-win deal for both parties
ETIHAD AIRWAYSPRESENTED TO
FINANCE
PAST WINNERS
2011
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JETBLUE AIRWAYS
It would not be unreasonable to say thatsurprise and puzzlement
surrounded therevelation by Etihad Airways that it had
bought almost one-third of Air Berlin onthe eve of the festive
season last Decem-
ber. What was the motivation behind the fast-growing but at that
time unprofitable Gulfnetwork carrier acquiring 29% of
Germanysstruggling, loss-making hybrid airline?
Fast-forward a few months and Etihad hadbeaten its own public
expectations by report-
ing its first if modest profit some eightyears after the Abu
Dhabi carrier launchedservices with two leased Airbus A330s.
It has quickly implemented a stream of ini-tiatives to
capitalise on the Air Berlin acquisi-tion and speed the airlines
financial turna-round. It also emerged that far from being asudden
and opportune deal, the acquisitionhad been in the works for
several years, withEtihad having become a silent shareholder viaa
3% stake when it was first evaluating takinga large slice. So
Etihad has significant involve-ment in an airline operating into a
vital Euro-pean market, while Air Berlin benefitsthrough economies
of scale, synergies and the
buying power Etihad brings.Weve spent just under $100 million
for
29%, and we believe with incremental reve-nue we can claw that
back in two years time,says Etihad president and chief
executive
James Hogan, who is already seeing strongpassenger flows through
the tie-up.
Additionally, Etihad has loaned Air Berlin$250 million to help
it meet pre-delivery pay-ments on the 15 Boeing 787s it has on
order.This will be paid back over the next fiveyears at commercial
rates, and thats been se-curitised, too, says Hogan. That got
themover a short-term gap.
The judges felt it was a win-win deal for
both parties, and were impressed by the Unit-ed Arab Emirates
network carriers rapid tran-sition to profit. Air Berlin was
desperatelyshort of cash, and Etihad was looking to investin
Europe, said one judge. The magnitudeof Etihads financial
improvement is worthyof attention, said another.
Air Berlin reported an operating loss of$247 million for 2011,
but Hogan has faith inthe management teams restructuring
pro-gramme: Im confident theyll turn the busi-ness around in the
next 24 months.
The deal is the most significant in a seriesof investments
Etihad has made during the
past six months. It has also acquired a 40%stake in Air
Seychelles and minority holdings
in Irelands Aer Lingus and Virgin Australia.Hogan hints that
more could follow.
He sees the Air Berlin involvement as along-term project that
will enable Etihad tostretch the network. It is helping
Etihadovercome difficulties it has had accessing thelarge European
corporate and travel manage-ment companies in Germany, Austria
andSwitzerland. Overnight, weve been able toenter the German market
through Air Berlin.Its helped us become a household name inthe
country, says Hogan.
Etihads move into profitability comes dur-ing a period of
sustained, rapid growth. Sixyears ago, we were turning over $300
million.
In 2012, well turn over $5 billion, says thechief executive,
appointed in 2006.
Last year, the airline reported an operatingprofit (EBIT) of
$137 million and a net profitof $14 million, on revenues of $4.1
billion.Hogan puts the success which came in theface of volatile
oil prices, the Arab Spring and
Japanese disasters down to a good fuel-hedging policy, cost
control and high load fac-tors. And after the success of 2011,
Hogan iscertainly not resting on his laurels: Ivemoved into
profitability, and Ill stay there.
MAX KINGSLEY-JONES
Overnight, weve beenable to enter the German
market through Air BerlinJAMES HOGAN
Chief executive, Etihad Airways
Etihad
Etihad
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