Etihad Airways yesterday revealed plans to invest up to US$100 million in Serbia's loss-making carrier Jat Airways as the Abu Dhabi airline widens its network of global equity partnerships.
Under the deal, Etihad will take a 49 per cent equity stake in the carrier, which will be renamed Air Serbia, and sign a five-year management contract in a bid to revive its fortunes. The remaining stake will be held by the Serbian government, which has also agreed to sink up to $100m into the carrier.
James Hogan, Etihad's president and chief executive, said the move would focus on helping the more than 80-year-old Serbian carrier build a "sustainable, competitive and profitable" future. "In addition to creating scale, our renowned business model provides a unique common platform to drive synergies and cost savings, which will be of considerable benefit to Air Serbia as the new airline evolves," he said during a press conference yesterday in Belgrade to unveil the plans.
The deal will represent the sixth so-called equity alliance signed by Etihad as it seeks to deepen its global network, draw more passengers through its Abu Dhabi hub and compete with neighbouring Emirates Airline and Qatar Airways.
To date, it has a 29.2 per cent stake in airberlin, 40 per cent in Air Seychelles and 10.5 per cent in Virgin Australia. It also has a 2.9 per cent shareholding in Aer Lingus and was on Tuesday given approval by India's Foreign Investment Promotion Board to move ahead with taking a 24 per cent share of Jet Airways.
"Etihad Airways' reputation, financial strength and stability will be of significant benefit to Air Serbia and we are delighted to launch this strategic partnership," said Aleksandar Vucic, the deputy prime minister of Serbia.
Serbia's government has been looking to sell a stake in its ailing national carrier after two previously failed privatisation attempts in 2008 and 2011. As a forerunner to the deal, Etihad launched daily flights between Abu Dhabi and the Serbian capital in June.
Etihad will hope the investment can echo the success of its Air Seychelles' partnership.
That airline returned to profit last year after Etihad took over a five-year management contract of the troubled carrier in January of the same year.
In recognition of the challenges facing Air Serbia, Mr Hogan spoke of the "tough decisions" ahead.
It has already brought in a new chief executive, Dane Kondic, a dual Serbian-Australian national, and has announced plans to retire Jat's ageing fleet of 10 Boeing 737-300 aircraft in place of 10 new narrow-body planes, either Airbus A320neo or Boeing 737. The fleet will be replaced by leased narrow-body jets in the interim.
But Jat's acting general manager, Velibor Vukasinovic, was quoted by Serbian media as saying this week that between 300 and 500 staff would have to leave the airline. Mr Kondic said yesterday it was too early to comment on potential job cuts.
Those remaining will be given training by Etihad staff at its Abu Dhabi headquarters.
In a research report released last month in anticipation of the deal, the Centre for Aviation, a research company, said the outlook for Jat would improve "significantly" as a result of the partnership.
To the carrier's existing 33 destinations, a further 12 cities will be added in Europe, the Middle East and Africa, including four services a week between Belgrade and Abu Dhabi from October.
Under the agreement, Etihad will make a $40m loan facility that will be converted into equity in January, subject to regulatory approval. The funds will be matched by an equal cash injection by the Serbian government. Both parties will also each provide further funding through shareholder loans and other funding mechanisms of up to $60m to meet working capital requirements and support network development.
tarnold@thenational.ae