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Etihad snaps up stake in debt-laden Air Berlin

Air Berlin shares jump as much as 12 percent as news of Etihad buying 31.5 million shares at 2.31 euros and a provision of a $255 million loan comes to the fore.

December 19, 2011 3:51 by

Etihad Airways threw a lifeline to ailing Air Berlin and gained access to more European routes by raising its stake in the German airline to 30 percent and lending it $255 million.

Abu Dhabi-based Etihad will buy new shares in Air Berlin, Germany’s second-biggest carrier after Lufthansa , for about 73 million euros ($95 million), raising its stake to 29.21 percent from just below 3 percent, Air Berlin said on Monday.

It will buy 31.5 million new shares at Friday’s closing price of 2.31 euros.

“This is good news for Air Berlin shareholders because Etihad Airways is a strong anchor investor and the capital increase … will improve the low equity ratio,” DZ Bank analyst Robert Czerwensky said.

Air Berlin shares jumped as much as 12 percent and were up 8.7 percent at 2.51 euros by 1133 GMT.

The deal includes a codeshare agreement giving Etihad access to Air Berlin’s dense European short-haul route network, and to the German capital ahead of rival Emirates , which has lobbied for years to be allowed to fly to Berlin.

Middle East carriers such as Etihad, Qatar Airways and Dubai-based Emirates have been aggressively expanding route networks, provoking fears that Gulf-based superjumbos would draw traffic from European carriers’ hubs.

Air Berlin, which sees synergies of 35-40 million euros in 2012 from the deal, will move its Middle East offices from Dubai to Abu Dhabi and will offer four flights a week from Berlin to the Gulf state from Jan. 15, the companies said.

So far, Etihad offers Frankfurt, Munich and Duesseldorf as German destinations. Emirates declined to comment on the deal.

Etihad has been named repeatedly by media as a possible investor for Air Berlin, as well as for Lufthansa’s bmi and Aer Lingus, but has so far brushed off such reports.

“Although the Air Berlin deal does not necessarily preclude further deals, it does make them less likely short-term,” analysts at Espirito Santo said in a note.

A source familiar with the bmi sale said talks were at the final stage and that only Virgin Atlantic and British Airways were bidding for the carrier.

Etihad Chief Executive James Hogan told Reuters there were no immediate plans for any further acquisitions but said he would always take a look at good opportunities.

“Never say never,” he said.

Air Berlin has had a rocky ride this year, with founder and Chief Executive Joachim Hunold stepping down in August after failing for several years to return the company to profit.

Its shares have dropped below 2.50 euros from more than 20 euros in 2007, giving a market value of some 200 million euros. At the end of September, its debt was 644 million .

“Air Berlin is a good business. The issues were in regard to financing and their fleet requirements,” Etihad Chief Executive James Hogan told Reuters.

Etihad has agreed not to further increase its stake in Air Berlin for the next two years. Even if it planned to grow its holding, its possibilities are limited, as airlines based in the European Union must be at least half-owned by EU entities.

Existing major Air Berlin shareholders, which include Turkish group ESAS Holding, owned by the Sabanci family, and TUI Travel, have already endorsed the deal, Hogan said.

Air Berlin still plans to join the Oneworld alliance of airlines — which includes British Airways and Hong Kong-based Cathay Pacific — in the spring. Etihad is not a member of any airline alliance.

And while Air Berlin has cut loss-making routes, pushed back aircraft orders and issued a bond with an 11.5 percent coupon to shore up its finances, none of the 14 analysts listed as covering its stock in StarMine recommend buying its shares.

“It is still too early to turn positive,” Silvia Quandt analyst Stefan Kick said.

($1 = 0.7665 euro) (By Maria Sheahan and Peter Maushagen; additional reporting by Philipp Halstrick and Harro ten Wolde; Editing by Jon Loades-Carter, Dan Lalor and David Hulmes)

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