Etihad buys stake in Aer Lingus in possible link-up deal

ABU DHABI-BASED airline Etihad has quietly acquired 2.987 per cent of Aer Lingus’s shares over the past couple of months.

Aer Lingus last night confirmed it was in discussions with Etihad in relation to reciprocal code-sharing arrangements. The two airlines are also investigating the possibility of joint procurement opportunities.

Aer Lingus said Etihad had given an undertaking it does not intend to increase its shareholding pending the outcome of these discussions. Aer Lingus said: “There is no certainty as to the outcome of these discussions.”

This is the clearest signal yet of Etihad’s desire to become a key strategic investor in Aer Lingus and indicates its strong interest in buying the Government’s 25 per cent stake when it is put up for sale.

Other areas of co-operation being investigated by the airlines include joint marketing arrangements and the possibility of Aer Lingus flying routes to the Middle East.

Etihad has used Bank of America and Merrill Lynch to buy about 11 million Aer Lingus shares on its behalf.

Under stock market rules, Etihad is not required to disclose its shareholding until it has passed the 3 per cent threshold.

Etihad used a similar tactic last year with Air Berlin. In December it increased its 2.99 per cent stake in Air Berlin to 29.2 per cent via the purchase of €73 million of new shares in the German airline.

That deal also included a code-share deal, and Etihad agreed to provide five-year financing of up to $255 million (€193 million) to support Air Berlin’s fleet development.

In addition to its stake in Air Berlin, Etihad also owns 40 per cent of Air Seychelles and is reported to have held talks with Air France KLM about a partnership.

Etihad has made no secret of its desire to raise its European profile, and of its interest in Aer Lingus.

Aer Lingus could potentially feed Etihad’s hub in Abu Dhabi with connecting traffic for Asia and Australia. Similarly, Etihad could provide traffic for Aer Lingus’s network.

Aer Lingus might also be attractive to Etihad given its position as one of the biggest holders of slots at Heathrow Airport in London, where capacity is significantly constrained.

Etihad began flying from Dublin to Abu Dhabi in 2007 and operates 10 times a week between the cities. It also runs a line maintenance operation in Dublin and has extensively recruited Irish pilots and cabin crew for its operations both in Ireland and overseas.

Aer Lingus’s biggest shareholders are Ryanair, with 29.8 per cent; the Government, with a quarter share; and Denis O’Brien, who owns 3 per cent.

The Government plans to offload its stake in Aer Lingus as part of its programme of State asset sales agreed with the troika. It has said this would be done when the timing was right, with Minister for Transport Leo Varadkar indicating it would seek at least €1 a share for its stake. Such a price would net the State €134 million.

Aer Lingus’s shares have risen by about 16 per cent since the end of February, closing in Dublin yesterday at 97.5 cent. They have closed on two days in April at €1 apiece.

Etihad chief executive James Hogan was in Dublin on April 12th to announce an extension of its multimillion euro sponsorship with the GAA of the All-Ireland hurling championship.

In relation to the ongoing speculation about its interest in the Government’s Aer Lingus stake, Mr Hogan told The Irish Times: “ are working through their own process. They haven’t come out with any documentation in regard to that process, so we just continue to focus on our knitting.”

He said Etihad was “keen to have a look” at Aer Lingus.

No comment was available from Etihad yesterday.