Etihad Airways has just agreed to invest in Air Serbia and will soon add a stake in Jet Airways to its portfolio. Now it is looking at another investment—in LOT Polish Airlines— but the fate of Etihad affiliate Air Berlin shows that the road to financial success can be very long.
The Abu Dhabi-based carrier has been following a strategy of growing quickly through acquisitions to catch up with its older and larger rival, Emirates. In addition to its European partners Air Berlin and Aer Lingus, it has stakes in Virgin Australia (which it plans to increase) and Air Seychelles. Etihad is also waiting for regulatory approval to complete its purchase of a 25% stake in Jet Airways of India.
The strategy is controversial; many of the additions to Etihad's portfolio are in need of deep restructuring and network benefits appear limited. Etihad argues it can realize significant synergies on the cost side through joint purchasing and in other areas. Aer Lingus says its code-sharing deal with Etihad has been more successful than anticipated.
According to industry sources, Etihad is looking at the next step. It is understood to be in negotiations with the Polish treasury about an equity investment in LOT. The negotiations are already at an advanced stage, they say, but could still take several months to be finalized. There have also been rumors about talks with Alitalia, with which Etihad has just expanded a code-sharing agreement.
Poland has unsuccessfully tried to dispose of LOT in several privatization campaigns over many years. Last year's unexpected €38 million ($50 million) loss (against a profit forecast) triggered the latest initiative, which could finally succeed.
LOT will not comment and an Etihad official says that “we never comment on rumors and speculation.” The Polish treasury states that “seeking an investor for LOT is in progress.” The ministry points out that a change in Polish law now allows the government to sell a majority stake in the airline and that “is a new aspect and an opportunity for effective completion of the process.” The treasury also hints that “the involvement of a non-EU investor in LOT is also possible in the current legal status. Parties to the transaction, however, are bound to develop legal mechanisms to ensure that LOT preserves the status as a community (EU) carrier.”
Given its previous investment pattern, it is unlikely that Etihad would seek a majority stake in LOT, which would complicate matters further. According to industry sources, the Abu Dhabi-based airline is looking at acquiring a large minority stake. Currently, the Polish treasury holds 68% of the shares, the government- owned TFS Silesia Regional Economic Fund has 25%, and employees control 7%. In the case of Air Serbia, Etihad went for 49%. It settled for 29% of Air Berlin to avoid total foreign ownership in the airline exceeding 50%.