Etihad Airways ups Air Berlin shareholding, boosting share price

Dec 19, 2011, 11:41 GMT

Berlin - Shares in Air Berlin surged by about 10 per cent Monday after Etihad Airways announced that it is to become Germany's second biggest airline's largest shareholder.

Based in Abu Dhabi, Etihad Airways is to pay about 72.9 million euros (95 million dollars) to increase its the stake in Air Berlin to 29.2 per cent.

'The strategic partnership with Etihad Airways paves the way for unique opportunities for the future prospects of our company,' said Air Berlin chief Hartmut Mehdorn announcing the agreement between the two airlines.

Under the deal, Etihad will raise its stake in Air Berlin to 29.2 per cent from its current level of 2.99 per cent during the first three months of next year.

The deal also includes a code-sharing agreement between the two airlines and debt financing for Air Berlin totalling 255 million through to December 2016. Air Berlin expects the agreement to generate synergies of between 35 million to 40 million euros next year.

The move by Etihad Airways represents a welcome injection of fresh capital for Air Berlin, which has a built up a business based on budget travel but has struggled financially in recent years.

Air Berlin has already moved to cut its fleet from 170 aircraft to 152 by the end of next year and to cut unprofitable routes from its operations.

Investors responded positively to the deal driving up the German airline's shares by about 10 per cent to more than 2.50 euros.

The Etihad Airways' investment represented 'an interesting and positive development' said Markus Huber from the ETX Capital broking group.

But he warned that Air Berlin still faced a difficult business climate as a result of Europe's downbeat economic outlook and high oil prices.

Air Berlin, which is Germany's second-biggest airline after Lufthansa, plans to expand its board of directors to 17 to include non-executive directors to be appointed by Etihad. Etihad chief executive James Hogan is also to be appointed vice chairman of Air Berlin's board.