Etihad Ups Stake In Debt-Laden Air Berlin

December 19, 2011

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Abu Dhabi-based Etihad Airways agreed to spend about EUR€73 million (USD$95 million) to raise its stake in Air Berlin to almost 30 percent, throwing a lifeline to the debt-laden German airline.

Etihad will buy about 31.5 million new shares in Germany's second-biggest airline at Friday's closing price of 2.31 euros, raising its holding to 29.21 percent from 2.99 percent, Air Berlin said on Monday.

"This is good news for Air Berlin shareholders because Etihad Airways is a strong anchor investor and the capital increase... will improve the low equity ratio," DZ Bank analyst Robert Czerwensky said.

The deal includes a codeshare agreement between the two airlines, which gives Etihad access to Air Berlin's strong European short-haul route network.

It is also providing Air Berlin with a loan of up to USD$255 million with a term until end-2016.

"Air Berlin has a strong position in Germany, but we are also interested in its position in Austria and Switzerland," Etihad chief executive James Hogan told reporters in an interview after the deal was announced.

Hogan said Air Berlin's existing major shareholders, which include Turkish group ESAS Holding, owned by the Sabanci family, and TUI Travel, have endorsed the deal.

The agreement also gives Etihad access to Germany's capital city, ahead of Dubai-based rival Emirates, which has been lobbying to be allowed to fly to Berlin for years. So far, Etihad had offered Frankfurt, Munich and Düsseldorf as its German destinations.

FINANCING ISSUES

Air Berlin has had a rocky ride this year, with founder and chief executive Joachim Hunold stepping down in August after failing for several years to bring about a turnaround, and Air Berlin has been trying to shrink its way back to profit.

It has cut unprofitable routes, pushed back aircraft orders and issued a bond with an 11.5 percent coupon to shore up its finances, while its debt pile grew to EUR€644 million (USD$862 million) at end-September from EUR€489 million at the end of 2010.

The company's shares have dropped to less than 2.50 euros from a high of more than 20 euros in 2007, giving Air Berlin a market value of just over EUR€200 million.

"As a business, Air Berlin is a good business. The issues were in regard to financing and their fleet requirements," Etihad CEO Hogan said.

Air Berlin said it saw synergies of EUR€35 million - EUR€40 million from the deal with Etihad in 2012.

It still plans to join the oneworld alliance of airlines -- which includes British Airways and Hong Kong-based Cathay Pacific -- by the spring.

Etihad had been named repeatedly by German media as a possible investor in Air Berlin. The Gulf carrier dismissed an earlier report which said it planned to raise its stake, saying it was inaccurate.

(Reuters)