Etihad snaps up stake in debt-laden Air Berlin

File picture shows Air Berlin aircrafts on the tarmac at Berlin Tegel airport, August 18, 2011.

FRANKFURT (Reuters) - Abu Dhabi-based Etihad Airways agreed to spend about 73 million euros to raise its stake in Air Berlin (AB1.DE) to almost 30 percent, throwing a life line to the debt-laden German airline.

Etihad will buy about 31.5 million new shares in Germany's second-biggest until end-2016.

Air Berlin shares jumped Berlin with a loan of up to $255 million with a term codeshare agreement between the two airlines, which gives Etihad access to Air Berlin's strong European short-haul as much as 12 percent and were up 7.5 percent at 2.48 euros by 0831 GMT.

"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.

The deal includes a airline after Lufthansa (LHAG.DE) at Friday's closing price of 2.31 euros, raising its holding to 29.21 percent from 2.99 percent, Air Berlin said on Monday.

It is also providing Air route network.

"Air Berlin has a strong position in Germany, but we are also interested in its position in Austria and Switzerland," Etihad Chief Executive James Hogan told Reuters in an interview after the deal was announced.

Hogan said Air Berlin's existing major shareholders, which include Turkish group ESAS Holding, owned by the Sabanci family, and TUI Travel (TT.L), have endorsed the deal.

The agreement also gives Etihad access to Germany's capital city, ahead of Dubai-based rival Emirates EMIRA.UL, which has been lobbying to be allowed to fly to Berlin for years. So far, Etihad had offered Frankfurt, Munich and Duesseldorf as its German destinations.

FINANCING ISSUES

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 bring about a turnaround, and Air Berlin has been trying to shrink its way back to profit.

It has cut unprofitable routes, pushed back aircraft orders and issued a bond with an 11.5 percent coupon to shore up its finances, while its debt pile grew to 644 million euros at end-September from 489 million at the end of 2010.

The company's shares have dropped to less than 2.50 euros from a high of more than 20 euros in 2007, giving Air Berlin a market value of just over 200 million euros.

"As a business, Air Berlin is a good business. The issues were in regard to financing and their fleet requirements," Etihad CEO Hogan said.

Air Berlin said it saw synergies of 35-40 million euros from the deal with Etihad in 2012.

"With the fresh equity and credit facilities from Etihad, Air Berlin has improved its solvency to survive its transition period and the difficult market environment," Silvia Quandt analyst Stefan Kick said, but he maintained his "avoid" rating on the company's stock.

It still plans to join the Oneworld alliance of airlines -- which includes British Airways (ICAG.L) and Hong Kong-based Cathay Pacific (0293.HK) -- by the spring.

Etihad has been named repeatedly by German media as a possible investor in Air Berlin. The Gulf carrier dismissed an earlier report which said it planned to raise its stake, saying it was inaccurate.

(Reporting By Maria Sheahan and Peter Maushagen; additional reporting by Harro ten Wolde; Editing by Jon Loades-Carter and Dan Lalor)