August 01, 2013
Etihad Airways plans to buy a 49% stake in Serbian national carrier Jat Airways and rebrand the operator Air Serbia under a five-year management contract that proposes sweeping changes to the company’s structure and network.
Air Serbia will be Etihad’s sixth affiliated equity partner, including Air Berlin (in which Etihad has a 29% stake), Air Seychelles (40%), Virgin Australia (10.5%), Aer Lingus (2.99%) and Jet Airways (24%).
Abu Dhabi-based Etihad is trying to build scale comparable to its regional rivals Emirates Airline and Qatar Airways, while bypassing the three global alliances, through acquisitions.
The deal signals a shift of power among Balkan airlines and raises the question of whether more such deals are to come. Jat has been left on the sidelines in the international airline industry for many years, partly for political reasons, unlike rival Croatia Airlines. Now, Air Serbia’s fortunes look much better given the large capital injection planned by Etihad, while Croatia is looking to shrink. There have also been reports that Turkish Airlines is interested in buying the Greek carriers Olympic Air and Aegean Airlines, which are currently planning to merge.
As in the Etihad case, Turkish’s interest is in further penetrating the South-East European market and developing feed for its hub.
As part of the Jat agreement, Etihad plans to inject a total of $100 million to recapitalize the carrier. The Serbian government is matching that investment. Following the expected regulatory approval, Etihad plans to convert a $40 million loan into equity on Jan. 1, 2014, giving the airline a 49% stake in Air Serbia.
While the Serbian government will continue to have a majority stake, Air Serbia will be run by Dane Kondic under a five-year management contract with Etihad.
Kondic, who was named CEO of Air Serbia today, has dual Serbian and Australian citizenship (Etihad CEO James Hogan is Australian), and has worked for Malaysian Airlines and Qantas, among others.
Etihad plans to fundamentally revamp the Serbian carrier’s operation. Jat currently has a mainline fleet of 10 Boeing 737-300, all of which are to be replaced. In the short-term, the airline is to lease more up-to-date narrowbodies. Longer-term, an order for 10 new aircraft is foreseen.