August 09, 2013
Etihad Airways is in negotiations with the Polish treasury about an equity investment in LOT Polish Airlines, sources close to the talks tell Aviation Week. The negotiations are already at an advanced stage, they say, but it could still take several months for the process to be finalized.
Poland has unsuccessfully tried to dispose of LOT in several privatization campaigns over many years. Last year’s unexpected €38 million loss (against a profit forecast) triggered the latest initiative, which could finally prove successful. LOT would be the fourth European airline in which Etihad holds an equity stake after Aer Lingus, Air Berlin and Air Serbia.
LOT did not comment, An Etihad spokesman said that “we never comment on rumors and speculation.” The Polish treasury stated that “seeking an investor for LOT is in progress.” The ministry points out that a change in the 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 (European Union) carrier.”
It is unlikely that Etihad would go for a majority stake in LOT, complicating the matter further. According to industry sources, the Abu Dhabi based airline is rather looking at acquiring a large minority stake in the airline. Currently, the 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 has 29% of Air Berlin to avoid foreign ownership in the airline exceeding 50% together with other non-EU investors.
Last year, Turkish Airlines was close to buying the LOT stake, but backed off the plans at the last minute.
Etihad has been following a strategy of growing fast through acquisitions in an effort to catch up quickly with its older and larger rival Emirates. In addition to its European partners, it has stakes in Virgin Australia—which it plans to raise further—and Air Seychelles. Etihad is also waiting for regulatory approval to complete the purchase of a 25% stake in India’s Jet Airways.
The strategy raises eyebrows in industry because a lot of the additions to the Etihad portfolio need deep restructuring, and network benefits seem 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 agreement with Etihad has been more successful than anticipated.
People with knowledge of the initiative say Etihad has no plans to merge its European affiliates into one entity, but is looking at central overall network planning and a harmonized strategy. Air Berlin, which would be at the center of such a move, won’t comment. With Air Serbia, Etihad signed a five-year management contract, but Etihad does not have such an arrangement with Air Berlin. Even so, senior Etihad-backed executives have been added to the German carrier’s management.
Recent government support for LOT complicates the issue. The airline got a €100 million short-term bail-out package from the Polish treasury late last year to avoid bankruptcy, which has since been approved by the European Commission. The airline has asked for another €88 million in June with the conditional support of Poland’s new Finance Minister Wlodzimierz Karpinski, but he also said that “this is the last attempt to rescue LOT.” Approval of the second bail-out is still pending.