June 1, 2014 / 5:11 PM / 4 years ago

Etihad Airways takes steps toward Alitalia investment

DUBAI (Reuters) - Etihad Airways said it had set the terms for investing in loss-making airline Alitalia and was looking to conclude the deal, as the Abu Dhabi carrier expands its reach in Europe.

Alitalia's logo is seen at the top of the headquarters at Fiumicino international airport in Rome October 14, 2013. REUTERS/Max Rossi

Both airlines will proceed with final documentation to complete the transaction once the board and stakeholders in Alitalia confirm acceptance of the terms, it was announced in a joint statement on Sunday.

Etihad, which already has stakes in Air Berlin (AB1.DE) and Aer Lingus AERL.I, could invest more than 500 million euros ($682.3 million) in exchange for a 49 percent stake in the Rome-based airline, sources have said.

No details of the terms of deal or size of investment was provided in the statement.

Italian Transport Minister Maurizio Lupi told state television that Etihad was ready to invest around 600 million euros in Alitalia. He also said the deal would not entail creation of a separate company to hive off its bad debts.

Abu Dhabi-based Etihad has been looking at the possibility of an investment in Alitalia since the start of the year. But the prospect of large job cuts at Alitalia as well as its debt of at least 800 million euros have been major hurdles in the talks. One source familiar with the talks said an agreement had been reached that would involve reducing Alitalia’s payroll by as many as 2,800-2,900 jobs, at least part of which may be covered by a state-sponsored layoff scheme.

Major job cuts are likely to stir opposition from Italy’s unions.

The deal included a compromise over Etihad’s request for a high-speed rail line to the Fiumicino airport in Rome after Italy said it could not be done quickly, the source added. “We are delighted to be able to move forward with this process and look forward to the successful conclusion of the proposed transaction with Alitalia,” Etihad Chief Executive James Hogan said in the statement.

Alitalia Chief Executive Gabriele Del Torchio said the deal would provide financial stability to the airline.

The Italian government looks favorably at the partnership, the statement added.

($1 = 0.7328 Euros)

Reporting by Praveen Menon and Tim Hepher; Additional reporting by Gavin Jones; editing by Jane Baird

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