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India – Etihad Builds On Its “Equity Alliance”.

19 December, 2013


Legal News & Analysis – Asia Pacific – India – Shipping Maritime & Aviation


In October, the Indian Government approved Etihad’s purchase of a 24% stake in Indian carrier Jet Airways in a US$379 million deal, paving the way for the first foreign direct investment in India’s aviation sector, after the Indian Government relaxed restrictions in September last year allowing foreign companies to hold a stake of up to 49% in Indian airlines.

Indian airlines have struggled for years with high operating costs, poor infrastructure, and heavy losses, but the local aviation market is considered to have huge growth potential, as India’s increasingly affluent middle classes take to air travel. Ajit Singh, India’s civil aviation minister, welcoming Etihad’s investment, said:

“It’s very good for aviation and it may restore the confidence of investors in the Indian growth story.”

Apart from the obvious significance of the deal in terms of the Indian aviation sector, the stake taken by Etihad represents a further step forward for the airline in building what its chief executive, James Hogan, calls “an equity alliance.” Although dwarfed by its Gulf rivals Emirates and Qatar, Etihad, which is wholly owned by the government of Abu Dhabi, has been on a US$1 billion spending spree since 2001, buying up stakes in and lending cash to half a dozen struggling airlines.

It started building its “equity alliance” by buying a 29% stake in loss making Air Berlin, then took a 40% stake in Air Seychelles. Those deals were followed last year by the acquisition of a 3% stake in Aer Lingus and a small stake in Virgin Australia, which it has now built up to a 17.4% shareholding. In August Etihad took a 49% stake in JAT, Serbia’s national carrier, and now it has acquired the 24% stake in Jet Airways. James Hogan says that Etihad’s investments are not purely opportunistic, but part of an overall coherent strategy based on operating out of a Gulf hub, which enables Etihad to fly nonstop to almost any point on the globe.

The Etihad strategy has undoubtedly succeeded in feeding more passengers onto its network, which includes, apart from the “equity alliance” airline partners, 45 codeshare partners serving a virtual network of 350 destinations. Etihad’s annual traffic has grown by 42% over the last two years, to nearly 12 million passengers, with a fifth of all of its revenues now generated by its equity partners.

However, much to James Hogan’s chagrin, parallels are being drawn between the Etihad strategy and the ill-fated Swissair expansion. Swissair collapsed in 2001 under the burden of losses and financial guarantees from minority stakes taken in several troubled European carriers, including the Belgian carrier Sabena. James Hogan firmly rejects any comparison with Swissair: “This isn’t the Swiss model. We won’t step in to other people’s problems. We only invest if we see network cooperation, the ability to take out costs collectively and a good management team.” He says the sun is setting on the era of global alliances, and says that he believes these alliances are being undermined by a growing trend for tie-ups between airlines outside of these alliance groupings. The Etihad strategy is certainly making the industry sit up and take notice, with Hogan winning the Executive Leadership award at this year’s Airline Business’ Airline Strategy Awards; with judges commenting that the Etihad strategy is “shaking up the industry”.


When interviewed, James Hogan remains coy about what future investments Etihad may make. Commentators have speculated whether Etihad will take a stake in Alitalia, or in troubled Polish state-owned carrier LOT, and there is a lot of speculation about whether Etihad will increase its stake in Aer Lingus, if Ryanair is forced to sell off some of its shareholding. Hogan will only concede that he would like to try and expand Etihad’s foothold in the US market.




For further information, please contact:


Rovine Chandrasekera, Partner, Stephenson Harwood

[email protected]

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