senatorflyer
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Etihad The Next Swissair?

Fri Apr 12, 2013 12:35 pm

It seems Etihad is increasing its investment portfolio in loss making airlines with the recent announcement of Etihad wanting to buy a 49% stake in JAT.

Mr Hogan seems to have the same plan like the former Swissair managers, invest a significant amount of money in every airline no one else is interested in. At the time Swissair didn’t want to join any alliances when they had the chance, Mr Hogan basically thinks alliances are a thing of the past. With all 3 ME carriers, Etihad being the smallest, serving the same market, can Etihad really compete against Emirates with this strategy or will the outcome, let’s say in 10 years’ time, be similar to what happened to Swissair.

I know there is a lot of money in the Abu Dhabi, but even the Arabs have limits when it comes to pumping money in an unsustainable business model? Keep in mind, Swissair was sitting on CHF 6 billion in cash on any given day before they launched the unsuccessful “Hunter strategy”.

What are your thoughts?

[Edited 2013-04-12 06:03:38]
 
JU068
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 12:49 pm

Quoting senatorflyer (Thread starter):
49% stake in JAT.

It's Jat, JAT was the Yugoslav carrier.

Well, let's not forget that Etihad is a profitable carrier despite these investments.
 
senatorflyer
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 1:02 pm

Net profit was USD 14 million according to their annual report 2011. Not much for a company with 9000 employees. Also, they have a significant lower cost basis than European airlines.
 
Pe@rson
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 2:13 pm

Quoting senatorflyer (Reply 2):
Net profit was USD 14 million according to their annual report 2011. Not much for a company with 9000 employees.

True, but that increased to $42m in 2012 (their FY ended Dec) for a net profit margin of 0.9%, up from 0.3% in 2011. Its 2012 net margin was just marginally lower than the average for IATA airline (1%), which obviously indicates just how terribly airlines, at least collectively, perform, with 1% meaning just 1 cent in net profit for every $1 in revenue. Anyway, at least EY's YOY performance is a step in the right direction.
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deltalaw
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 2:54 pm

Quoting senatorflyer (Thread starter):
Mr Hogan seems to have the same plan like the former Swissair managers, invest a significant amount of money in every airline no one else is interested in.

Can someone please enlighten me...which airlines, that no one else was interested in, was Swissair invested in?
 
bx737
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 3:02 pm

IIRC they invested in AOM of France, Air Littoral also in France, Sabena and LTU. They then set up the Qualiflyer alliance and all of these airlines were members.
 
senatorflyer
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 3:36 pm

Also LOT, Air Europe, Portugalia, Volare and South African Airways

[Edited 2013-04-12 08:37:12]
 
senatorflyer
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 3:48 pm

There is the full list, % based on 1999 Annual Report:

Volare 34%
LTU 49.9%
SAA 20%
LOT 37.6%
Portugalia 42%
Sabena 49.5%
AOM 49%
Air Littoral 49%
Air Europe 45%

Balair (100% I think)
Crossair (not sure how much %)
 
deltalaw
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 4:05 pm

Thanks for all the info, I had no idea they were invested in so many airlines. Somewhat ironic now considering that LX, Swissair's successor as the flag carrier, is owned by LH, who has their own aggressive investment policy.
 
JU068
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 4:23 pm

Quoting senatorflyer (Reply 7):
Volare 34%
LTU 49.9%
SAA 20%
LOT 37.6%
Portugalia 42%
Sabena 49.5%
AOM 49%
Air Littoral 49%
Air Europe 45%

Who took over the shares of these airlines once they went bankrupt? I suppose LOT was the Polish government.
 
senatorflyer
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 4:46 pm

Good question, some of them went bankrupt as well (Sabena, Air Littoral and AOM). LTU became Air Berlin if I am not mistaken, Portugalia is now owned by TAP, Air Europe and Volare became part of Alitalia if I recall correctly but do not exist anymore.
 
senatorflyer
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 4:51 pm

Oh, Balair was bought by a Swiss supermarket chain for their holiday division and became Air Berlin as well.

Crossair is now Swiss International Air lines.
 
SCQ83
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 4:59 pm

Quoting senatorflyer (Reply 7):
There is the full list, % based on 1999 Annual Report:

Volare 34%
LTU 49.9%
SAA 20%
LOT 37.6%
Portugalia 42%
Sabena 49.5%
AOM 49%
Air Littoral 49%
Air Europe 45%

Balair (100% I think)
Crossair (not sure how much %)

What a mess... !!! And you need to pay $$$ to consultants for that?
 
SpaceshipDC10
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 5:09 pm

Quoting senatorflyer (Reply 7):
Volare 34%
LTU 49.9%
SAA 20%
LOT 37.6%
Portugalia 42%
Sabena 49.5%
AOM 49%
Air Littoral 49%
Air Europe 45%

With those hodgepodge airlines, Swissair, i.e. its managers, tried to create a fourth alliance, of high quality service with Swissair in the middle. The rest is history.
 
SCQ83
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 5:25 pm

Quoting SpaceshipDC10 (Reply 13):
With those hodgepodge airlines, Swissair, i.e. its managers, tried to create a fourth alliance, of high quality service with Swissair in the middle. The rest is history.

"High-quality service alliance" with the likes of Air Europe, LTU, Portugalia or LOT?
 
SpaceshipDC10
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 5:47 pm

Quoting SCQ83 (Reply 14):
"High-quality service alliance" with the likes of Air Europe, LTU, Portugalia or LOT?

Well, not much remained after Star Alliance and Oneworld, and from what I remember of that time, SAirGroup wanted to have a stronger presence on the Leisure market too, hence why they had 49.9% in LTU or 45% in Air Europe.
 
TK105
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 7:31 pm

I remember those Qualiflyer Group days of TK. It became a feeder airline to Swissair. I think difficult days for Swissair started once Delta left the group. Also TK left right after Delta.
 
Independence76
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 8:40 pm

Quoting JU068 (Reply 1):
Well, let's not forget that Etihad is a profitable carrier despite these investments.

Swissair was a sign of mass profit in the airline industry for years. It only took 3 years before a single investment plan buried them in debt for good.

Quoting senatorflyer (Reply 7):
There is the full list, % based on 1999 Annual Report:

Volare 34%
LTU 49.9%
SAA 20%
LOT 37.6%
Portugalia 42%
Sabena 49.5%
AOM 49%
Air Littoral 49%
Air Europe 45%

Balair (100% I think)
Crossair (not sure how much %)

Swissair's stake in Sabena was increased by the Chairman (Honegger) in early 2001 from 49.5% to 85% in order get better control of the airline in terms of their operations. This was not initially released publicly and the board was not made aware of it until after the contracts were already signed and after he left the company.

[Edited 2013-04-12 13:43:36]
 
flyingalex
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 9:56 pm

Quoting senatorflyer (Reply 10):
LTU became Air Berlin if I am not mistaken,

You're partially correct.

LTU was eventually bought by LTU, but this didn't happen until 2007, and the sale was not fully completed until 2009. The Swissair bankruptcy was in 2001.

In the interim, various investors held stakes of various sizes. The German version of the Wikipedia article on LTU has a decent rundown of who held what and when.
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 10:27 pm

Quoting senatorflyer (Thread starter):
What are your thoughts?

My thoughts are that there are basically no similarities between Etihad and Swissair. Remember that Swissair acted in a completely different time era in aviation. Much could be said about this but any hints that Etihad may go the same way as Swissair is just words with no substance.
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senatorflyer
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 11:21 pm

Quoting Navigator (Reply 19):
Quoting Navigator (Reply 19):
My thoughts are that there are basically no similarities between Etihad and Swissair. Remember that Swissair acted in a completely different time era in aviation. Much could be said about this but any hints that Etihad may go the same way as Swissair is just words with no substance.

If anything, I think times are even worse now with today’s economy and fuel prices. Fact is that Etihad is investing in lossmaking carriers without being the majority shareholder. So there are some similarities.
 
delimit
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RE: Etihad The Next Swissair?

Fri Apr 12, 2013 11:33 pm

Etihad doesn't seem to be trying to hammer out an alliance; just make strategic investments in markets where they see growth. They're also working with a number of more established carriers where they see that being beneficial.
 
thorntot
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 1:56 am

One can only imagine if they had invested all that money in Swissair...
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crazyguineapig
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 3:55 am

Please take into considerations that even though Etihad may be investing in money-losing airlines, that some of the airlines in question are not losing that much money. Air Seychelles for example only operates a couple of jet aircraft and therefore can only lose so much money. This is not justification for a potential catastrophe for Etihad. An airline can only lose a "dangerous" amount of money if their fleet is rather large, which is why Air Berlin is the main concern.

I noticed that your thread began on the news that Etihad is buying a stake in JU, the Serbian national carrier. To be objective, Jat is a money-losing carrier. It is in approximately 170 million euros worth of debt---BUT, this debt is accumulated, which means that the yearly losses are a very very small fraction of this sum. It is not unreasonable to presume that this 170 m debt figure began accumulation well over 20 years ago (Jat started losing money between 1987 and 1992--keep in mind that Yugoslav sanctions started in 1992), and with all of the factors plugged in, it can be estimated that Jat's yearly losses cannot possibly exceed 4 or 5 million euros at most. This is a FAR CRY from the yearly losses that the likes of Sabena, Portugalia, LOT, and other airlines were losing as collateral burden to Swissair. My point is that Jat and Air Seychelles are not "big enough" money-losers to create a catastrophe for Etihad.
 
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 4:05 am

Quoting crazyguineapig (Reply 23):
Air Seychelles for example only operates a couple of jet aircraft and therefore can only lose so much money. This is not justification for a potential catastrophe for Etihad. An airline can only lose a "dangerous" amount of money if their fleet is rather large, which is why Air Berlin is the main concern.

This is where your premise is flawed. A small airline can easily lose a "dangerous" amount of money. In fact in some ways it is easier for a smaller airline to do that than a larger airline.

Quoting crazyguineapig (Reply 23):
It is in approximately 170 million euros worth of debt---BUT, this debt is accumulated, which means that the yearly losses are a very very small fraction of this sum. It is not unreasonable to presume that this 170 m debt figure began accumulation well over 20 years ago (Jat started losing money between 1987 and 1992--keep in mind that Yugoslav sanctions started in 1992), and with all of the factors plugged in, it can be estimated that Jat's yearly losses cannot possibly exceed 4 or 5 million euros at most.

This is not how debt and profit/losses work. A loss doesn't automatically convert to an airline's debt. Jat has some financial statements available on their website. In 2010 (the most recent year I can find) they lost ~ $29.5 million, or about 23 million euros. That is worse than in 2009, where they lost about $11 million (a little more than 8 million euros). Their operating loss for both years was ~$ 27 million/ 21 million euros.

[Edited 2013-04-12 21:18:34]
 
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 6:26 am

Quoting senatorflyer (Reply 20):
Fact is that Etihad is investing in lossmaking carriers without being the majority shareholder. So there are some similarities.

And onother fact is that the balance sheet of Etihad is totally different from the one at Swissair. Etihad has financial muscles to do do what it is doing while Swissair did not. So still I think there are more differences than similarities.
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 6:38 am

Quoting SCQ83 (Reply 14):
"High-quality service alliance" with the likes of Air Europe, LTU, Portugalia or LOT?

Why not? I flew LOT WAW to ZRH in an Embraer once and I found their service excellent. LTU was, in their good times, a premium leisure carrier.

Back to Etihad , the prime difference is, that Etihad is more or less privately owned and the owners have endless money and the dedication to build a hub carrier for AUH.

While the old SR was a listed company and had to follow the corporate laws of Switzerland.

Hence, no valid comparison possible.
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kaitak
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 6:43 am

Quoting Navigator (Reply 25):
And onother fact is that the balance sheet of Etihad is totally different from the one at Swissair. Etihad has financial muscles to do do what it is doing while Swissair did not. So still I think there are more differences than similarities.

Absolutely; Etihad has huge financial muscle behind it and since it's effectively the national carrier of Abu Dhabi, the Abu Dhabi government would not let it go down - and they're not short of a few quid! That said, their investments have been selective and careful; not sure about JAT (I don't know a lot about them), but Jet makes sense and of course, Aer Lingus - which is doing very well in a difficult market and against the toughest competitor in European (or even worldwide) aviation. I wouldn't consider its (Etihad's) investments reckless.
 
JU068
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 7:31 am

Quoting Polot (Reply 24):
This is not how debt and profit/losses work. A loss doesn't automatically convert to an airline's debt. Jat has some financial statements available on their website. In 2010 (the most recent year I can find) they lost ~ $29.5 million, or about 23 million euros. That is worse than in 2009, where they lost about $11 million (a little more than 8 million euros). Their operating loss for both years was ~$ 27 million/ 21 million euros.

Jat's losses and its increasing debt are not because the airline is not generating cash but it is because of corruption. If I am not mistaken, in 2010 the airline got a loan from Citi Bank for the lease of B737-700s from AeroMexico and it would further invest in its fleet. None of this happened because once the cash arrived it was taken by the government. Jat was left with increased debt and empty promises. In 2011 I actually took a look at Jat's books and they were not that bad, naturally they were not bad if you remove the government from the equation.

Quoting kaitak (Reply 27):
not sure about JAT

Serbia is located in the heart of the Balkans, and they are surrounded by vulnerable airlines, where most are still trying to cope with the liberalisation of the market. In addition to that, Serbia is the only country in its region which is not doing everything Brussels asks it to do thus we are not going to become an EU member state in the next 15 years (at least). This makes the airline appealing for the Arabs because they will not have to deal with Brussels and EU law but they can deal with the Serbian government and our local laws.
Furthermore, the UAE is currently investing €400,000,000 in Serbia's agriculture and they will be building a microchip factory right next to Belgrade airport. Because of these two things they have immediately decided to build a large cargo centre at the airport. Actually, the cargo centre was the initial plan but then our government managed to convince them to take Jat as well.
The Sheikh of Abu Dhabi loves Serbia and he has been visiting us a few times. He also wants to invest in other parts of the country and he is actually a close friend with the leader of our biggest party. So Etihad's investment is just one part of the larger picture.
 
QANTAS077
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RE: Etihad The Next Swissair?

Sat Apr 13, 2013 8:05 am

Quoting JU068 (Reply 1):
Well, let's not forget that Etihad is a profitable carrier despite these investments.

only took a decade too...