Newspaper article International New York Times

Etihad Says Possible Deal with Alitalia Has 30 Days ; Abu Dhabi Airline Cites Profitability Concerns in Italian Carrier Investment

Newspaper article International New York Times

Etihad Says Possible Deal with Alitalia Has 30 Days ; Abu Dhabi Airline Cites Profitability Concerns in Italian Carrier Investment

Article excerpt

The Abu Dhabi airline said it was in serious negotiations over a possible investment in the troubled Italian airline.

After reviewing Alitalia's books for more than a month, Etihad Airways of Abu Dhabi says it is in serious negotiations over a possible investment in the troubled Italian airline, and it has set a 30-day deadline to wrap up a deal.

In a brief joint statement on Sunday, which came as Italy's prime minister, Enrico Letta, was on an official visit to the United Arab Emirates, the two airlines said their discussions had entered "the final phase" and that they would try to devise a common strategy in the coming weeks.

"Any issues that may prevent the establishment of an appropriate business plan will have to be resolved to ensure the plan can be implemented to move Alitalia to sustainable profitability," the airlines said, without elaborating on the remaining sticking points.

Alitalia's "issues" are not inconsequential, nor is the size of the investment the airline is seeking -- as much as 300 million euros, or $405 million, according to people with knowledge of the discussions who requested anonymity because the talks were not complete.

Over the past five years, Alitalia has cut costs, renegotiated contracts with workers and suppliers, and shed noncore assets.

But Italy's grinding economic crisis, rising fuel costs and heightened competition from more nimble low-cost rivals have largely overwhelmed the carrier's turnaround efforts.

Negotiations with Alitalia's previous strategic partner, Air France-KLM, over a cash injection of a similar size broke down in November after the Italian government and Alitalia's creditors balked at the French-Dutch airline's conditions for a deal, including a large write-down of Alitalia's nearly EUR 1 billion in debt.

Air France, which at the time owned 25 percent of Alitalia, ultimately opted out of a subsequent rights issue, which lowered its stake to 7 percent.

Air France-KLM's finances are much more constrained than those of Etihad, which is wholly owned by the government of Abu Dhabi, the capital of the oil-rich United Arab Emirates. …

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