FRANKFURT Etihad Airways is taking a stake of almost 30 percent in Germany's Air Berlin (AB1.DE), becoming the first Gulf carrier to challenge European legacy airlines by putting cash on the table to gain scale.
Abu Dhabi-based Etihad will spend about 73 million euros ($95 million) to buy new shares of Air Berlin, raising its stake to 29.21 percent from just below 3 percent, and will lend the German carrier $255 million, the two companies said on Monday.
Shares of Air Berlin jumped as much as 12 percent and were up 8.2 percent at 2.50 euros by 1427 GMT.
Middle East carriers such as Etihad, Qatar Airways and Dubai-based Emirates EMIRA.UL have been aggressively expanding route networks, provoking fears that Gulf-based superjumbos would draw traffic from European carriers' hubs.
Qatar Airways recently acquired a 35 percent stake in all-freight carrier Cargolux, but the Air Berlin move is the first time a Gulf carrier has bought an equity stake in a European passenger airline.
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 EMIRA.UL, which has lobbied for years to be allowed to fly to Berlin.
Air Berlin, which sees synergies of 35-40 million euros from the deal next year, 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 January 15, the companies said.
So far, Etihad offers Frankfurt, Munich and Duesseldorf as German destinations. Emirates declined to comment on the deal.
"It's very tough to get into corporate accounts in Germany," Etihad Chief Executive James Hogan told Reuters.
Airlines vie for business with corporate travelers, who are often willing to pay higher prices for last-minute bookings and are less flexible on flight dates and times, making them more profitable for airlines than tourists.
"With Air Berlin we can access those corporate accounts. They can give them an offering not only in Germany, but also in the Middle East and southeast Asia. That's where it starts to come together."
NEVER SAY NEVER
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 and piling up debts of more than 600 million euros.
"This (acquisition) 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 also hopes that joining the Oneworld alliance of airlines -- which includes British Airways (ICAG.L), American Airlines AMR.N and Hong Kong-based Cathay Pacific (0293.HK) -- this spring will help stabilize its business.
Etihad is not a member of any airline alliance, and Deutsche Bank analysts said they were concerned the deal announced on Monday could create some irritation at Oneworld.
Etihad has been named repeatedly by media as a possible investor for Air Berlin, as well as for Lufthansa's bmi and Aer Lingus (AERL.I). As recently as two weeks ago, it said a report that it plans to buy a stake in Air Berlin was inaccurate.
CEO 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.
He said existing major Air Berlin shareholders, which include Turkish group ESAS Holding, owned by the Sabanci family, and TUI Travel TT.L, have endorsed the deal.
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.
($1 = 0.7665 euro)
(additional reporting by Brian Rohan in Berlin and Philipp Halstrick and Harro ten Wolde in Frankfurt; Editing by Dan Lalor, David Hulmes and Mark Potter)