Abu Dhabi’s sovereign owned Etihad Airways is ready to go where most airlines would fear to fly, with a major investment in Italy flag carrier Alitalia.

In a statement last night Etihad said:

Alitalia and Etihad Airways today confirmed that they have agreed the principal terms and conditions of a proposed transaction whereby Etihad Airways will acquire a 49 per cent equity stake in Alitalia.
The airlines will now move to finalise the transactional documents, that will include the agreed upon conditions, as soon as possible. The conclusion of the investment is subject to final regulatory approvals.

If the deal goes ahead, and most of the European media sees this as a near certaintly, Etihad will significantly add depth to and expand the scope of, its strategy of building a world wide web of airline investments, which recently includes 21.24 percent of Virgin Australia with permission to take that to 22.9 percent.

In European terms, a 49 per cent owned and definitely controlled Alitalia will fly alongside 29.21 percent of AirBerlin, 4.1 percent of Aer Lingus (alongside a larger stake held by Ryanair), 49 per cent of Air Serbia and 34 percent of Swiss turbo prop regional Darwin Airline.

The move is yet again being criticised by Germany’s largest full service airline Lufthansa but not so far by Lufthansa rival Air France KLM, in which the Air France brand has important code share arrangements with Etihad.

While the Alitalia move is unlikely to have much immediate effect on the Australia market if it goes ahead as expected, it may cause a reappraisal in this country of the serious intent of Etihad to be a global player, which has largely been ignored in industry analysis in this part of the world.

Etihad is a very different entity in business behaviour to its larger neighbouring UAE carrier, Dubai based Emirates. Where Etihad is buying into the fabric of aviation on a world scale with current emphasis on Europe, India and Australia, the Emirates business has been built on a monolithic strategy of creating a massive fleet of aircraft, including the world’s largest squadrons of Airbus A380s and Boeing 777s, running in parallel with the massive sovereign investment the owners of the airline have separately made in Dubai as a port and in maritime facilities world wide.

In the case of Alitalia, the deal showed signs of not going ahead at various times, and the negotiations went on far longer than anyone had expected. It is reasonable to conclude that Etihad has extracted from Alitalia agreement for some very thorough and painful reconstructions of its business, which was widely reported in Europe as being headed for yet another bankruptcy or complete failure. And as soon as this August, according to some reports.

The Alitalia that Etihad will reconstruct is the 2009 entity that was bought by private capital from the ruins of the previous historic Alitalia that had a long association with Australia from the 60s through to the 90s. Alitalia was the first international airline to use Melbourne’s Tullamarine Airport, and the first to bring a Boeing 747 to Canberra (on 22 November 1977), even though it was on fire at the time and making an emergency landing.