Etihad deal hunt hints at shifting strategy

Abu Dhabi flagship carrier Etihad Airways could significantly increase its share of the lucrative long-haul market if it acquires a stake in either Lufthansa’s loss making BMI or Ireland’s Aer Lingus, aviation analysts said.

An ownership stake in BMI would enable the state-backed airline to tap into European domestic demand while a stake in Aer Lingus would offer it greater access to the North American market.

“Etihad tying up with Virgin to place a bid for BMI would not only strengthen their foothold at Heathrow - where slot availability is a precious yet limited commodity - it would also allow them to tap into yet more domestic and European travellers that can then feed Etihad’s operations throughout the UK,” said Saj Ahmad, a London-based aviation analyst.

“Taking such a big stake in Aer Lingus means that Etihad would be investing for the long term, partly with a view to perhaps overhauling the airline and also to further integrate its business for greater access to the North America market where its presence is relatively small,” he added.

Media speculation about Etihad acquiring stake in a European airline has been mounting over the last few days. The Financial Times reported Saturday that the Abu Dhabi carrier had approached the Irish government to buy its 25 percent stake in national airline Aer Lingus.

News of the possible acquisition followed a day after the newspaper reported that Etihad had held talks with Virgin Atlantic on a potential partnership should the British airline bid for BMI.

Etihad, in an emailed statement to Arabian Business, didn’t rule out its interest in BMI but said: “We never comment on speculation of this nature, except to say that we talk regularly and frequently to many airlines and a range of other businesses from all over the world about issues and opportunities.”

Abu Dhabi-owned Etihad is ramping up its fleet as it strives to win passengers from regional airline’s Emirates Airline and Qatar Airways.

The airline has 57 wide-body planes, with 103 jets due for delivery in the coming decade, including 10 A380s, 25 Airbus A350s and 35 Boeing 787s.

The acquisition of an airline would signal a new strategy for the carrier, which has favoured route expansion and codeshare deals to underpin growth, said Oussama Salah, a Dubai-based aviation analyst.

“This is definitely a new strategy. Etihad is big on code share agreements with airlines,” he said.

A possible stake in Aer Lingus would be mutually beneficial for both the airline and the Irish government, he said.

“An acquisition of Aer Lingus might help Etihad get a larger share of the market or better conditions from the Irish government that wants to sell its share to pay for its debts.”

Etihad would be unable to make a bid of its own for BMI due to foreign ownership rules but a possible tie-up between Etihad and Virgin would enable the Abu Dhabi carrier to tap into BMI’s short and medium long-haul network.

“If anything, Etihad would likely prefer going after BMI due to the greater number of slots BMI holds than vie for Aer Lingus,” said Ahmad.

“It makes sense that a cash-strapped Virgin Atlantic...can leverage the financial strength of Etihad to snare BMI away from British Airways and its parent the IAG group.”

Virgin Atlantic and IAG, the holding company of British Airways and Spain’s Iberia, have said they are interested in buying the carrier. Virgin’s billionaire owner Richard Branson has been interested in purchasing BMI for more than a decade.