LAXintl
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Alitalia In Talks With Etihad Over Stake

Sun Aug 25, 2013 7:58 pm

We had rumors earlier this year, but news out this weekend says Alitalia and Etihad are in talks about the UAE carrier taking a stake in the loss making Italian carrier.

According to sources the carriers have been holding meetings the last several weeks including attendance by AZ new CEO Gabriele del Torchio.

The CEO earlier this year had said AZ needed a € 300mil capital injection before the end of the year.

Neither company would make comment on the reports.

An investment by Etihad would dilute people like Air France unless they also invest further capital to retain their stake position.

source articles (Italian & French)
http://www.lefigaro.fr/flash-eco/201...tions-entre-alitalia-et-etihad.php
and
http://carlofesta.blog.ilsole24ore.c...otesi-su-un-accordo-azionario.html

=
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kenanc
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RE: Alitalia In Talks With Etihad Over Stake

Sun Aug 25, 2013 8:51 pm

I'm no expert on this, but do you think this is trying to hint that Etihad wants to join Skyteam?
 
Eirules
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RE: Alitalia In Talks With Etihad Over Stake

Sun Aug 25, 2013 11:09 pm

Quoting KenanC (Reply 1):
I'm no expert on this, but do you think this is trying to hint that Etihad wants to join Skyteam?

Who knows what EY wants. They are buying stakes in airlines left, right and centre.
AB - OneWorld
EI - Non Alliance
9W - Non Alliance
VA - Non Alliance

They codeshare with airlines from all three alliances SA)">AA, AC, CZ, TK, SA, MH, NZ, AF etc so it seems as likely they would join Star as Skyteam (if we rule out EK due to their closeness to QF all of a sudden)
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mercure1
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RE: Alitalia In Talks With Etihad Over Stake

Sun Aug 25, 2013 11:59 pm

I hope Etihad knows what they are doing.
Throwing lots of money at bunch of loss making airlines will either end spectacularly well, or in a spectacular disaster.
 
TUGMASTER
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 12:30 am

Quoting mercure1 (Reply 3):
Throwing lots of money at bunch of loss making airlines will either end spectacularly well, or in a spectacular disaster.

reminds me of Swissair.....

Sabena, some French outfit, a tickle with Austian once..?

sure there is more,

But this time, I think they have the $$$ to back up their investment.
 
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lightsaber
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 12:55 am

I'm excited by EY's strategy of taking failing airlines are reforming them into profitable operations. But will the... legacy of Alitalia, can they reform them enough? Or is there too much 'legacy obligations?' (Payroll and pensions). But the one thing EY could fix with AZ is their hubbing. Use AZ as a southern feed to Europe and let AZ feed Italy and parts of Southern Europe to AUH. .


But this is just a question of ROI. EY seems to be doing well in their strategy...

Quoting Eirules (Reply 2):
Who knows what EY wants. They are buying stakes in airlines left, right and centre.
AB - OneWorld
EI - Non Alliance
9W - Non Alliance
VA - Non Alliance

and Croatia air...

Now they need several Asian airlines, but that will depend on need/bilaterals


Then they have the EY alliance.

I see some tie ins with Skyteam... but if EY expands enough, they could be like EK with their own alliance (just with more outside partners via investment).


Lightsaber
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bill142
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 1:00 am

If they wanted to show people they have money wouldn't it be better to go and one-up EK and place a huge A380 order instead of wasting it on investments in lost-cause airlines?
 
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Alsatian
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 4:04 am

Quoting lightsaber (Reply 5):

Did you mean Air Serbia ? (JAT Airways)
Ok I am French but I am not on strike
 
UAEflyer
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 4:09 am

The airline is backed by ADIA, where money is no issue at all
 
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lightsaber
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 5:22 am

Quoting Alsatian (Reply 7):
Did you mean Air Serbia ? (JAT Airways)

Oops... You are correct.

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travelhound
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 5:59 am

Quoting Bill142 (Reply 6):

Buying unprofitable airlines and adding value by combining their networks is actually a fairly good strategy. Often (in percentage terms) there isn't much difference between a profitable and non profitable airline.

Increasing load factors by a couple of percent, reducing costs by the same and remove all unprofitable flying can transform a marginal airline into a top tier earner.

I am interested to see how this pans out as it looks like Ethiads strategy is a double down on secondary destinations.
 
goldorak
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 6:09 am

Quoting LAXintl (Thread starter):
An investment by Etihad would dilute people like Air France unless they also invest further capital to retain their stake position.

The Etihad option is pushed for many months by AF who doesn't have any money to invest in AZ at the moment (they need to solve their own problem first). As AF/KL and EY are already partnering, EY is a safer way to keep AZ close to them rather than seeing them being acquired by an "unwanted competitor".
 
behramjee
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 7:15 am

With AZ, I feel its a different case scenario altogether as due to the all powerful unions/local politics and very high cost base structure, there is no way even with EY's guidance and financial backing can AZ make a "net profit" in the next 5 years.

It would be commercially beneficial for EY to just stick to their current strategy of code sharing with AZ and perhaps make them fly via AUH to new destinations in SE Asia where both currently do not operate flights such as HKG or CAN (Sky Team hub of CZ).
 
factsonly
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 7:46 am

Quoting Eirules (Reply 2):
They are buying stakes in airlines left, right and centre.
AB - OneWorld
EI - Non Alliance
9W - Non Alliance
VA - Non Alliance

JU - Non Alliance
AZ - SKYTEAM

I just hope EY have the management in place to run seven (and turn-around six) airlines simultaneously.

Could be a text book case of spreading yourself very thin, indeed !!
 
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lightsaber
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 9:14 am

Quoting behramjee (Reply 12):

With AZ, I feel its a different case scenario altogether as due to the all powerful unions/local politics and very high cost base structure, there is no way even with EY's guidance and financial backing can AZ make a "net profit" in the next 5 years.

That was my thought. I don't see how anyone could make AZ profitable. Not even EY.

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IndianicWorld
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 9:20 am

Very, very odd strategy.

I understand buying stakes in a few carriers, but one as troubled as AZ has been really needs very careful consideration. What benefits will it bring? What are the risks? I would say that there are more risks than benefits at this stage if proper due diligence is undertaken.
 
koruman
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 9:24 am

I have a new strategy that I intend to patent:

1. Select an airline in a country where the second and third cities are more viable business centres than the capital city (which is larger), and which therefore has no obviously viable hub airport.

2. Select an airline which has horrible levels of inefficiency and over-manning.

3. Select an airline in which the culture of customer service is
a) Shut up and leave me alone.
b) I'm not your slave.
c) Just because you have a ticket entitles you to nothing.
d) I'm on a break, go away.

4. Pour lots of money into the airline, while not being allowed to change manning levels, contracts or even the culture.

5. Enjoy the rewards of your wise investment.

What could possibly go wrong?
 
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Alsatian
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 10:21 am

Quoting IndianicWorld (Reply 15):

Right, Alitalia is a loss-making carrier and I am also sceptical about the EY strategy. But in this case the benefit is Italy. As Goldorak stated, AF/KL wants to keep its current partnership with AZ, LH tried Lufthansa Italia but failed. Northern Italy is a strong industrial area that no-one wants to ignore. Rome, Milan or Venice are key markets and AZ has a little goldmine with its LIN slots.
Ok I am French but I am not on strike
 
r2rho
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 10:56 am

What EU airline is Etihad not buying a stake in? At this rate, they'll have more airlines than the LH group!  

EY's strategy is a very different approach to EK for instance. EK flies their own aircraft and pushes the limits of the bilaterals, while EY buys up stakes in troubled airlines and gets indirect access through codeshares and linking up networks. There is potential... but also risk if those airlines are not succesfully turned around. Will be interesting to watch.

Buying into AZ certainly brings EY closer to Skyteam... but I wouldn't assume future membership yet, EY still has their options open and may not need or want alliance membership.
 
Azure
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 11:01 am

I understand the irony and skepticism from many posters but let's recall some facts :

- Italy is the 4th European market in terms of passengers.

- AZ have presented an industrial plan last july to break-even in 2016. This plan relies on an increase of international and intercontinental routes, and also mentioned the strengthening of the partnership with EY.

- Last June, AZ have increased frequency on the FCO-AUH service, launched 6 months earlier. The codeshare agreement with EY already includes a significant number of destinations in the ME, Africa and Australasia : Bahrein, Bangkok, Colombo, Jakarta, Johannesburg, Khartoum, Kuala Lumpur, Maldives, Melbourne, Muscat, Nairobi, Seychelles, Singapore and Sydney. In return EY codeshare with AZ to Athens, Barcelona, Belgrade, Bucarest, Budapest, Frankfurt, Geneva, Madrid, Malaga, Malta, Milan, Munich, Sofia, Tirana, Venice, Vienna and Zurich.

- AZ made it clear they needed € 300 Mi before the end of this year to finance their industrial plan

- Their current shareholders (including AFKL for 25%) are reluctant to throw cash again in the loss marking airline. They already injected € 150 Mi in March IIRC.

- AZ losses for 2012 were in the vicinity of € 300 Mi (their turnover was € 3,6 Bi) and their debt is abysmal (over € 1 Bi).

- However they reached an agreement with the Unions to lower the number of worked days by 5 per month (in exchange of a decrease of the board's members remuneration by 20%).

It is clear the economic situation in Italy has known better days but given the Italian market size and positive signs on the Unions side, AZ offer some potential that EY may want to grasp. As discussed in previous threads, AZ have already one of the lowest cost structure among the European legacies but their revenue is "catastrophic". They need to densify their aircraft a la KLM, attract more passengers by offering a better service and more destinations.

I'd say they would be a valuable asset in EY portfolio of airlines, giving the strategic location of FCO between Southern Europe, Africa, the Indian Ocean and the ME.




Quoting goldorak (Reply 11):
The Etihad option is pushed for many months by AF who doesn't have any money to invest in AZ at the moment (they need to solve their own problem first). As AF/KL and EY are already partnering, EY is a safer way to keep AZ close to them rather than seeing them being acquired by an "unwanted competitor".

Correct. Just note that AFKL (even if still loss-making) have € 4 Bi in cash + a number of unused credit lines that could help buy AZ. But should AFKL proceed they would automatically get back AZ debt, which would increase their own debt ratio that they are trying to lower with already some success.
 
SelseyBill
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 12:32 pm

Quoting lightsaber (Reply 5):
EY could fix with AZ is their hubbing. Use AZ as a southern feed to Europe and let AZ feed Italy and parts of Southern Europe to AUH

Absolutely right.

AZ has been a basket case of an organisation over recent years, but geographically speaking, Italy is perfectly located for a ME carrier to connect to most of Europe. Zagreb could obviously play a similar role for Eastern Europe feed for EY.

The incessant march of the ME3 carriers into Europe through investments and new routes has to be a concern for the legacy carriers, and the best way strategically for carriers to survive is working with them rather than compete with them.

Could be a good strategic move for AZ.
 
aviatorcraig
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 12:51 pm

Quoting r2rho (Reply 18):
What EU airline is Etihad not buying a stake in?

Croatia Airlines

Slightly off-topic but related, EY was very interested in Croatia Airlines but ended up taking a stake in JAT/Air Serbia instead.

What now is the future for the debt-ridden Croatia Airlines given that Croatia's recent joining of the EU will prohibit any further government bail-outs?
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TripleDelta
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 1:22 pm

Quoting aviatorcraig (Reply 21):
What now is the future for the debt-ridden Croatia Airlines given that Croatia's recent joining of the EU will prohibit any further government bail-outs?

Pretty much the same as that of (ex) JAT and now Alitalia - a partial sale to (or a cash injection by) a foreign carrier. Indeed, the government has announced that it'll put OU shares up for sale by mid-October, with Garuda and China Southern already having expressed strong interest in taking up 49% of the company (the max allowed for a non-EU state). As has been reported in the press, a delegation from the Ministry of Transport visit Jakarta this week for higher-level talks with Garuda.
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Shany
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 8:48 pm

reminds me of the hunter strategy...
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pnwtraveler
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RE: Alitalia In Talks With Etihad Over Stake

Mon Aug 26, 2013 9:32 pm

Quoting Bill142 (Reply 6):
If they wanted to show people they have money wouldn't it be better to go and one-up EK and place a huge A380 order instead of wasting it on investments in lost-cause airlines?

According to my friend, who is from Abu Dhabi and therefore not a impartial person, EY doesn't care about splash but rather quietly works to get the job done. The splash is saved for next door Dubai. As much as there is inter Arab competition there are still differences in style. A key reminder that the UAE is actually a number of different peoples under an umbrella.

Rather than come in and flood a bunch of cities/markets with aircraft they seem to be building a very big feeder network. This method, if successful, is likely to get much less opposition. I assume over time they will rationalize flights, drop less successful routes, and improve the connections. EY will be able to de facto reach into every corner of Europe and other places this way.
 
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lightsaber
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RE: Alitalia In Talks With Etihad Over Stake

Tue Aug 27, 2013 1:32 am

Quoting koruman (Reply 16):
What could possibly go wrong?

   Sure fire return on investment.

Quoting Azure (Reply 19):
- AZ have presented an industrial plan last july to break-even in 2016. This plan relies on an increase of international and intercontinental routes, and also mentioned the strengthening of the partnership with EY.

It relies on some generous growth assumptions and not enough on cost cutting. Unless worker productivity improves at AZ, they'll just be back in this situation in a few years. I wouldn't put my money down. Could EY negotiate a better

Quoting Azure (Reply 19):
- Their current shareholders (including AFKL for 25%) are reluctant to throw cash again in the loss marking airline. They already injected € 150 Mi in March IIRC.

My, that might imply they can do some basic math.

Quoting Bill142 (Reply 6):
If they wanted to show people they have money wouldn't it be better to go and one-up EK and place a huge A380 order instead of wasting it on investments in lost-cause airlines?

Why not make money? AB has been a great investment for EY and 9W certainly has promise.

AZ just has too many 'legacy costs.'

Lightsaber
"They did not know it was impossible, so they did it!" - Mark Twain

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