Etihad Airways and Alitalia today announced that they have signed the transaction implementation agreement which will result in a EUR 1,758 million investment to build a reinvigorated Alitalia as a competitive, sustainably profitable business.
The recapitalised Italian national airline will now be able to invest in a comprehensive strategic business plan which will see new long-haul routes from Rome and Milan, a revitalised brand, and a greater focus on Italian tourism and trade promotion. Italian travellers will be able to benefit from a wider choice of destinations while new global connections will boost inbound tourism.
Etihad Airways’ investment of EUR 560 million will be provided through a combination of equity injections, asset purchases and other financing facilities and funding arrangements to re-structure the airline’s balance sheet. This is to be complemented by a further equity investment of EUR 300 million from existing core Alitalia shareholders, including Intesa San Paolo (EUR 88m), Poste Italiane (EUR 75m), UniCredit (EUR 63.5m), Atlantia (EUR 51m), IMMSI (EUR 10m), Pirelli (EUR 10m) and Gavio (EUR 2.5m).
Additionally, up to EUR 598 million in financial restructuring of short and medium term debt has been provided by financial institutions and existing bank shareholders. EUR 300 million of new loan facilities have also been extended by Italian financial institutions.
Etihad Airways will take a 49 per cent shareholding in Alitalia for an investment of EUR 387.5 million. It’s total investment also includes EUR 112.5 million to acquire a 75 per cent interest in Alitalia Loyalty Spa, which operates MilleMiglia, the airline’s frequent flier programme, and the purchase by Etihad Airways of five pairs of slots at London’s Heathrow Airport valued at EUR 60 million. The slot pairs will be leased back to Alitalia on an arm’s length basis. The transaction is due to be completed on 31 December 2014.
Completion of the equity investment remains subject to completion by Alitalia and its key private and public stakeholders of certain conditions precedent and is also subject to final regulatory approvals.
James Hogan, President and Chief Executive Officer, Etihad Airways said, “For Etihad Airways, this is a strategic, long-term commercial investment. On completion, we are committed, with the other shareholders, to build a reinvigorated Alitalia as a competitive, sustainable and profitable business that can operate successfully in the global air travel market. It must be an airline of which Italians can be proud. Ultimately it has to work as a business and the goal is for sustainable profitability from 2017.”
Gabriele Del Torchio, Chief Executive Officer, Alitalia, said, “This is an excellent outcome for Alitalia. We have had to take some tough decisions in a very robust negotiation process but we have achieved the consensus we require to create the right shape and size for Alitalia in the future. This investment will provide financial stability and enable us to position Alitalia, and the travel and tourism industry in Italy, for long-term growth.”
While maintaining the relevance of short-haul routes, the proposed network plan focuses on the profitable growth of long-haul flying from both Rome Fiumicino and Milan Malpensa. This will include flights to new destinations, increased frequency in certain existing markets and an enhanced network to Abu Dhabi to capitalise on growing traffic between Italy and the UAE, and provide Alitalia’s passengers with seamless connectivity to Etihad Airways’ global network.
Starting from winter 2014, Alitalia will increase frequency between Rome Fiumicino and Abu Dhabi from five per week to a daily service, and commence a new daily service between Milan Malpensa and Abu Dhabi. This flying will complement Etihad Airways’ existing daily services on these markets and open up a range of new connecting opportunities for passengers of both airlines.
From summer 2015, Alitalia will also begin to implement connections between other Italian cities and Abu Dhabi, with plans for direct flights from markets such as Venice, Catania and Bologna.
Rome Fiumicino will emerge as a larger European intercontinental hub, with up to five new routes over the next four years, while long-haul flights from Milan Malpensa will more than double to 25 flights a week by 2018. Alitalia’s widebody fleet is planned to grow by a third, while its narrowbody fleet will be rightsized to meet the requirements of the new network plan. Members of the MilleMiglia frequent flier program will be able to ‘earn and burn’ on Etihad Airways and partner airlines, with future integration of the programmes planned.
While network integration and optimisation will deliver top-line revenue growth for Alitalia, the cost synergies inherent in the partnership will provide substantial opportunities. These include streamlined hub operations, and joint procurement in the areas of aircraft, engines, maintenance-repair-operations, training, catering, ground-handling and fuel. The partnership will also pave the way for the redesigning and automating processes and working arrangements in line with best practice, and the adoption of leading IT platforms.
