Etihad Airways has been on an investment spree in the past five years to embark on a journey of high growth but that has apparently not paid off. Two of its investments — Alitalia and Air Berlin — are in trouble, raising questions on its $4 billion splurge.
"Etihad was seeking the equivalent of five years of organic growth overnight, but shortcuts in aviation rarely work. Mostly you're buying into bad debt, bad mistakes—and skeletons in the cupboard," news agency Bloomberg quoted aviation analyst Mark Martin, who heads Dubai-based Martin Consultancy LLC.
The news agency said that the investments were in the form of shares, bonds and others. While the investment in Alitalia was $1billion (49 percent stake), the carrier had put in $2 billion in Air Berlin.
The Italian carrier filed for bankruptcy early this month amid rising losses after its approximately 12,400-strong workforce rejected pay cuts as part of an effort to revive the ailing carrier. It operated about 120 planes and flew 22.6 million passengers last year. The 70-year-old flagship carrier had sought a bailout package in 2008 and again in 2014 when Etihad rescued the loss-making airline.
Driving home the operational inefficiency of Alitalia, the New York Times reported that compared to the Italian carrier, Irish low-cost carrier RyanAir has a fleet of 300 aircraft that carry about 100 million passengers and employs 11,000 employees.
Air Berlin is facing a different kind of problem, facing a challenge from Germany's low-cost rivals and full-service airline Deutsche Lufthansa AG.
Etihad Airways had recently appointed Robin Kamark as chief executive officer, Airline Equity Partners to revisit the carrier's investments in Air Berlin, Alitalia, Jet Airways , Air Serbia, Air Seychelles, Etihad Regional and Virgin Australia, Reuters had reported on April 24.
Etihad in India
Etihad picked up 24 percent stake in India's Jet Airways, or 2.72 crore (27.2 million) shares at Rs 754 per share in April 2013. On Friday (May 19, 2017), the closing share price of Jet was Rs 519.20.
The April 2013 deal was pegged at Rs 2,050 crore (~$379 million).
Jet Airways (excluding Jet Lite) has a market share of about 15 percent in India's domestic air traffic; low-cost carrier IndiGo is the largest, with a share of about 40 percent. There are 12 carriers in the country, including state-owned Air India.