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Tue 24 Dec 2013 01:50 PM

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Latvia's AirBaltic likely next target for Etihad Regional - analysts

EU probe into the Latvian carrier’s state funding could mean it will be in need of urgent funding

Latvia's AirBaltic likely next target for Etihad Regional - analysts

Latvia’s AirBaltic is likely to be the next European carrier Abu Dhabi’s Etihad Airways will invest in as part of its development of the Etihad Regional brand, aviation analysts have claimed, especially if an EU investigation into the Latvian government’s funding of the airline results in it urgently needing to seek external investors.

An EU investigation, commenced in November this year is to probe state funding given to AirBaltic by the Riga government in order to avoid bankruptcy in 2011.

If the findings result in the carrier being forced to repay the funds back to the government, analysts said it will need to source alternative funding to sustain its plans to purchase new aircraft and to grow its passenger numbers in 2014.

This month, it was announced Etihad Airways had teamed up with AirBaltic to operate direct flights between Abu Dhabi and the Latvian capital of Riga.

Etihad has placed its ‘EY' flight code on the new AirBaltic operated service and beyond to 15 cities, including Alesund, Barcelona, Bergen, Billund, Copenhagen, Helsinki, Lappeenranta, Oslo, Prague, Stavanger, Stockholm, Tallinn, Turku, Vienna and Vilnius.

Subject to regulatory approvals, AirBaltic will soon place its ‘BT' flight code on Etihad Airways flights beyond Abu Dhabi to Cairo, Jakarta, Singapore, Bangkok, Amman and Muscat.

“If the EU rules that AirBaltic must repay the funds received from the state, this would increase the pressure to find a new investor... Some observers have suggested that the Etihad partnership could be a stepping stone to a future equity relationship. The codeshare attests to some meeting of minds already,” a report by CAPA said.

At the launch of the Etihad codesharing deal, Martin Gauss, CEO of AirBaltic welcomed the two airlines working together and said: "Working with Etihad Airways, we look forward to making this new route and the connectivity it offers over Riga and Abu Dhabi a great success, and we will continue to look at ways to expand our network in the future."

Last month at the Dubai Airshow, Etihad launched a new subsidiary, Etihad Regional, with the announcement it has bought a one-third stake in Swiss regional airline Darwin Airline.

The groundbreaking model will see Darwin's fleet rebranded as Etihad Regional, but they will continue to be operated by Darwin airline and carry the Swiss flag.

Etihad CEO James Hogan said the new model was a game-changer in global aviation.

"It will add to the Etihad airline alliances in a smarter way, bringing secondary European cities into our world network," he said.

"The object is all about network. How do we take our brand into markets that we don't reach in our own right?

"We're talking about second and third tier markets where we will not see Etihad Airways wide bodies.

"(Etihad Regional) gives us the ability to target those cities and help position and build a regional business."

Saj Ahmad, chief aviation analyst at StrategicAero Research, echoed the sentiment that AirBaltic could likely be the next carrier to come under the Etihad Regional banner.

“Yes it seems almost obvious that Etihad will emerge as their financial white knight - and to be fair, with Etihad Regional starting up next, it’s a good platform for Etihad to pull in another European airline under its belt and expand its footprint.

“It’s unclear whether AirBaltic would be rebranded - but if there is an equity infusion by Etihad, you'd have to think that the name would almost certainly change. The real question for me is whether AirBaltic wants to lose its identity - on paper, it may have to in order to survive.”

Etihad this week also signed a codeshare agreement with Aegean Airlines, Greece's largest commercial airline, and three unnamed sources told Bloomberg the carrier was set to invest €300m ($413m) into Italy’s Alitalia.

Etihad currently has equity stakes in seven airlines: Switzerland’s Darwin Airline, Air Serbia, Ireland’s Aer Lingus, Virgin Australia, Air Seychelles, India’s Jet Airways and AirBerlin.

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