Abu Dhabi’s Etihad Airways has received final regulatory approval to acquire a 49 percent stake in Serbian airline JAT Airways and has unveiled a $200m plan to revitalise and rebrand the ailing state-owned carrier as Air Serbia.
As part of the “groundbreaking deal” announced at an official signing in the capital Belgrade on Thursday, Etihad has been awarded a five-year management contract, which president and CEO James Hogan described as the start of “exciting new opportunities for Serbia”.
As part of the redevelopment plan, the UAE national carrier will provide a $40m loan to Air Serbia, which will be converted into equity on January 1, 2014.
Further down the line, Etihad has agreed to provide an additional $60m in the form of shareholder loans and other funding mechanisms.
As part of the partnership deal, Deputy Prime Minister Aleksandar Vučić announced the Belgrade government would match the funding provided by Etihad, giving the new airline a total cash injection of up to $200m.
“We are delighted to welcome Air Serbia to our equity alliance and look forward to working constructively with them and their stakeholders to build a sustainable, competitive, and profitable airline,” Hogan said.
While Hogan admitted there will be some “tough decisions to make” he said he was confident “the financial investment by Etihad Airways and the Government of Serbia, together with the positive impact of our joint management expertise and experience, will help ensure this airline, with its proud history, now has an even brighter future.”
As part of the overhaul of the loss-making legacy carrier, the workforce of 1,300 will be reduced, but Serbian Transportation Minister Milutin Mrkonjic told reporters in Belgrade in March he believed it could be back in the red this year due to the government agreeing to take over around $220m in liabilities on the carrier’s balance sheet.
“We believe JAT will be able to break even this year without the debt burden… The debt will be assumed by the state,” he said.
As part of Etihad’s five-year management deal, current JAT Airways CEO Velibor Vukašinović has been replaced with the newly appointed Dane Kondic, who announced the new-look Air Serbia comes with a new logo, new aircraft exteriors, redesigned cabin crew uniforms and ticket offices and a new advertising and marketing campaign.
In addition to the rebranding and capital input, the agreement will see Air Serbia’s route network increase from 33 destinations to 45, thanks to a codesharing arrangement with Etihad Airways and its equity partner Airberlin.
Etihad began operating daily flights to Belgrade in June but Air Serbia will begin services to Abu Dhabi from October, operating four flights a week. Other destinations due to come on stream will be Banja Luka, Beirut, Bucharest, Budapest, Cairo, Kiev, Ljubljana, Prague, Sofia, Varna, and Warsaw.
The fleet of ten Boeing 737-300 aircraft which operated under the Jat Airways name will be retired and replaced in the short term with leased narrow body aircraft. In the longer term, officials confirmed ten new aircraft will be ordered to help boost the expanding Air Serbia branded fleet.
Air Serbia is Etihad’s sixth equity partner, it also owns 29.21 percent of Germany’s airberlin, 40 percent of Air Seychelles, 10.5 percent of Virgin Australia, 2.99 percent of Irish carrier Aer Lingus and 24 percent of India’s Jet Airways.
The investment by Etihad is part of wider investment in the European country by the UAE. Earlier this year, the Gulf state made the largest investment in Serbia in more than 30 years, potentially helping to lift the Balkans state out of a deep recession.
Vučić said three deals signed with foreign minister Sheikh Abdullah bin Zayed would total $220m by 2017, according to Serbian media.
Serbia’s economy, which has struggled to recover from economic sanctions and damage to its infrastructure during the 1990s Balkan wars, has been in desperate need of foreign investment, particularly since the global financial crisis sent it into recession in 2009.
It is aiming to offload loss-making state businesses, drugs company Galenika and the Zelezara Smederevo steel mill, to keep its 2013 budget deficit at about 4.7 percent of output and secure growth of up to 3 percent.
During a two-day visit to the UAE in February, Vučić said investment from the UAE would greatly assist Serbia to climb out of the red.
He said UAE-based company Mubadala may also put “about US$4bn” into Serbia in the future in investments in the missile industry, agro-business and a new modern hotel on the site of the former military headquarters in Belgrade that were bombed by NATO in 1999.
The UAE’s bin Zayed was reported as saying the deals represented a growing partnership between the two countries.
“This is a great day for relations between our two states, and what is even more important than this ceremony is that in the next several months, citizens of the UAE and Serbia will see how serious our governments are in establishing these ties between our two countries, of which we can be proud,” Bin Zayed said.
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