Etihad CEO says mulling further airline deals

James Hogan 'looking at range of carriers'; Ireland's Aer Lingus being monitored by Abu Dhabi airline
Etihad CEO says mulling further airline deals
By Bloomberg
Fri 10 Feb 2012 09:38 AM

Etihad Airways, the Middle East’s third-largest carrier, said it’s mulling further purchases after investing in Air Berlin, with Aer Lingus Group of Ireland one of the companies that’s being monitored.

Abu Dhabi-based Etihad is “looking at a range of carriers” and would seriously consider one or two global opportunities to help feed its network, CEO James Hogan said in an interview, adding that there are no advanced talks.

“We don’t enter an agreement to bail somebody out, we enter into an agreement to improve our top line and revenue and take out more cost,” Hogan said. “With Aer Lingus we have looked at top line, but haven’t entered into any advanced negotiations.”

Etihad’s most important growth driver this year will be its increased 29.2 percent holding in Air Berlin, acquired for $350m in equity financing and funds for planes, Hogan said, with the German discount carrier likely to contribute $50m in revenue.

The Gulf company, which posted its first full-year profit on Thursday, also has a 40 percent stake in Air Seychelles following a $45m deal last month.

Ireland’s government said on Thursday after Hogan’s comments that there has been “strong interest” in its 25 percent stake in Aer Lingus and that all approaches will be considered in the event of a formal decision to sell.

A disposal would be part of a drive to raise 2 billion euros ($2.6bn) from state assets to help satisfy commitments to the International Monetary Fund.

“The future of the government’s stake is entirely a matter for the shareholders,” Aer Lingus spokesman Declan Kearney said.

John Carroll, a government spokesman, said on January 6 that there was no plan to sell to Etihad after transport minister Leo Varadkar arranged to meet with Hogan on “tourism matters.”

Etihad’s investment criteria include a like-minded management and the ability to cut costs and achieve network integration, Hogan said today, adding that Air Berlin, Europe’s third-biggest low-cost operator, was tracked for three years.

“We monitor, we discuss these opportunities with the board,” the CEO said. “With Air Berlin it gives us a fantastic feed out of Germany, Switzerland and Austria. The premise is it has to feed and integrate with our network.”

Etihad has a “very strong” commercial relationship with Virgin Australia Holdings and would “seriously consider” opportunities to deepen ties should that be possible, said Hogan, who was born in Melbourne.

Foreign stakes in Australia’s international airlines are limited to 49 percent, according to the country’s trade commission. A call to Virgin Australia was unanswered on Thursday outside of office hours.

Etihad is not looking at acquisition opportunities in India “at the moment,” the CEO said at a press briefing. A proposal to relax foreign ownership there is awaiting cabinet approval after aviation and finance ministries recommended a 49 percent limit.

The Gulf carrier posted net income of $14m for last year, exceeding a target of breaking even, with sales 36 percent higher at $4.1bn. A cost-reduction program shaved $187m from expenses, the company said in a statement. Earnings before interest, tax, depreciation, amortization and rentals were $648m, and Ebit was $137m.

Hogan said that the state-owned carrier is targeting revenue of about $5bn this year, including $700m from cargo. The passenger total should reach 10 million, he said, 1.8 million more than in 2011, with “a corresponding increase in profits,” as costs are reduced by 4.6 percent.

Etihad hedged more than 80 percent of its fuel costs last year, helping protect it from volatility in oil prices, and has a 75 percent hedging plan in place for 2012, it said.

The airline, which competes in the Gulf with Dubai-based Emirates, the world’s biggest airline by international traffic, and Doha’s Qatar Airways, has been expanding its global presence via new routes and planes, as well as stakes in other airlines.

Etihad, which ordered 100 aircraft at the 2008 Farnborough Air Show, will receive a “considerable” number of planes starting in 2014 and these will be used largely to add frequencies to existing destinations, with plans to boost services to the Americas, Europe and Southeast Asia, Hogan said.

In about a week’s time, Etihad will meet with bankers in New York to help satisfy fleet-financing requirements, he said, adding that there are no near-term plans to issue bonds or Islamic sukuk. A similar event will be held in London.

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