According to reports from Europe, Etihad Airways is paying only €72.9 million ($94.9 million) to buy 27.03 per cent of Air Berlin, Europe ’s...

Abu Dhabi’s Etihad Airways has agreed to increase its stake in Air Berlin to 29.21 per cent, becoming the German carrier’s largest shareholder.

According to reports from Europe, Etihad Airways is paying only €72.9 million ($94.9 million) to buy 27.03 per cent of Air Berlin (which styles itself ‘airberlin’ and is Europe ’s sixth-largest airline) in addition to the 2.99 per cent pre-dilution shareholding it already owned in the carrier.

Air Berlin is issuing new shares at a price of €2.31, slightly below the €2.50 level at which Air Berlin’s shares have been trading recently, to fund the Etihad Airways share investment. Air Berlin’s shares had traded as high as €20 in 2007, but the German carrier has been unable to make a profit for the past four years and has been cutting routes and disposing of aircraft in an attempt to restore financial stability.

Although the deal values Air Berlin at only about €200 million ($260 million) in total market capitalization, Etihad Airways has also agreed to provide Air Berlin with five-year debt financing facilities of up to $255 million to support fleet development and future network growth. Air Berlin’s biggest recent concern has been in finding financing to pay for the aircraft it has on order.

Air Berlin, which is joining the oneworld alliance, operates 10 Airbus A330-200s and three A330-300s on transatlantic routes. It inherited the widebodies from LTU when Air Berlin took over the Dusseldorf-based carrier) The carrier also has 15 Boeing 787-8s on order

The strategic move, announced on December 19 in Berlin by Etihad Airways Chief Executive Officer James Hogan and Air Berlin CEO Hartmut Mehdorn, will see the two airlines connecting their networks and frequent-flyer programs to offer travellers a total network of 239 destinations across 77 countries.

In addition, Air Berlin is due to joint the oneworld alliance in the first half of 2012, offering access to a network of nearly 800 destinations in almost 150 countries.

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

Mehdorn added: “One of the key components of the new partnership is the launch of airberlin services to Abu Dhabi , which will become our new gateway to Asia and Australia. The agreement with Etihad Airways will also dramatically improve the global connectivity of our customers in Germany, Switzerland, Austria, and throughout the GCC and Middle East .”

Noting that the Air Berlin shareholding deal was one of the most important in Etihad Airways’ history, Hogan said: “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. Through airberlin, we gain immediate access to a broad and complementary European market, with outstanding connectivity options for customers of both airlines.”

Added Hogan: “Our partnership strategy has been integral to our success over the past eight years, and the returns we have seen from this strategy have confirmed its value. We are always looking for ways to grow and partnerships are a smart way to enhance our ability to compete on the world stage.”

Hogan continued: “We now have a portfolio of 34 quality airline partners, but this is our first equity investment in another airline. It is a sign of our confidence in airberlin’s management and in the carrier’s potential to grow with us. We expect such growth will also offer a host of additional employment opportunities, both in Europe and the United Arab Emirates.”

Etihad Airways has a total of 18 Boeing 777-300ERs in service and on order, and has optioned 14 more

Noted Hogan: “Etihad Airways and the airberlin group carry a combined total of more than 40 million passengers a year, operate 233 aircraft, and employ 18,000 people. Together, the companies generate more than US$ 9 billion in revenues. We estimate each airline could achieve incremental revenues of between €35 million and €40 million just in the first year, and we believe the partnership has enormous potential to unlock a range of efficiencies.”

Under the partnership, Air Berlin will shift its Middle East operation from Dubai to Abu Dhabi. The German carrier will operate four Airbus A330-200 flights a week between Berlin and Abu Dhabi from January 15.

This will give European travellers immediate access to a total of 29 flights a week to and through Abu Dhabi from four German hubs, and Air Berlin plans to increase this to 42 flights from mid-April.

The two airlines will implement an extensive codeshare agreement, with Etihad Airways codesharing on routes to 36 of Air Berlin’s 171 destinations and Air Berlin codesharing on routes to 24 of Etihad Airways’ 82 passenger destinations. The two carriers also plan further expansion of the pool of codeshare routes.

Etihad Airways will sign codeshare agreements with the Air Berlin group for all European activities including Niki, the Austrian airline, and Belair, the Swiss airline.

Meanwhile, Etihad Guest and topbonus, the airlines’ frequent-flyer programs, will be integrated, enabling passengers of both airlines to ‘earn and burn’ on each other’s flights and offering reciprocal benefits – including status earning – to top-tier members.

Under the agreement, Etihad Airways will have two seats on the board of directors of Air Berlin PLC.

The two companies will seek anti-trust immunity from the European Union and Abu Dhabi governments, which would allow greater coordination of route networks and of sales and marketing activities.

Air Berlin and Etihad Airways have committed to creating a joint procurement task force to look for cost efficiencies across the two companies, including areas such as fleet procurement and deployment, maintenance, repair and overhaul (MRO) and general procurement.