Etihad Airways and Serbia's Government signed (17-Jun-2013) an initial MoU to discuss an equity investment in Jat Airways. The airlines will discuss further integration of their networks and collaboration to improve Jat Airways' efficiencies, revenue and cost reduction measures. The proposed investment would depend on the successful completion of a comprehensive due diligence process and be subject to regulatory and board approvals. The airlines commenced codeshare operations on 15-Jun-2013 and Etihad Airways commenced daily Abu Dhabi-Belgrade service on the same date. The airlines plan to expand their codeshare network to include Etihad Airways' services from Abu Dhabi to Bangkok, Beijing, Brisbane, Chengdu, Chicago, Colombo, Ho Chi Minh City, Islamabad, Johannesburg, Karachi, Kuala Lumpur, Kuwait, Lahore, New York, Melbourne, Seychelles, Shanghai, Singapore, Sydney, Toronto, and Washington and Jat Airways' services from Belgrade to Amsterdam, Athens, Berlin, Brussels, Copenhagen, Düsseldorf, Rome, Frankfurt, Gothenburg, Istanbul, Larnaca, London Heathrow, Milan, Moscow, Podgorica, Sarajevo, Skopje, Stockholm, Stuttgart, Thessaloniki, Tivat, Vienna and Zurich, subject to government and regulatory approval. Etihad Airways president and CEO James Hogan said, "These are early days but we are excited about the future and look forward to exploring the possibility of a much deeper strategic commercial partnership with Jat Airways. As we have demonstrated with our minority equity investments in other airlines, significant on-going savings can be achieved through joint initiatives. These include pilot and crew training, fuel, insurance, and procurement and maintenance agreements for common engine types...As the partnership between Etihad Airways and Jat Airways deepens, and new codeshare destinations are added, we will see greater numbers of travellers being fed across the two networks. This will increase further with the codeshare between Etihad Airways’ equity partner, airberlin and Jat Airways, which will link Belgrade, via Berlin, to Chicago." [more - original PR]
Etihad Airways and Serbia's Government to discuss equity investment in Jat Airways
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Greater cooperation between Lufthansa and Etihad reflects their local and global challenges growing in quantity and complexity. Contact between the two has led to speculation that the partnership could radically expand to include an equity tie up, with rumoured merger talks.
Their initial Dec-2016 codeshare announcement was, in practical terms, small but showed the possibility, as they stated, to expand cooperation. However, it would be a leap to go from their handful of codeshares to a 17-Jan-2017 article from Italian daily newspaper Il Messaggero that Etihad could invest in Lufthansa on the way to a possible merger between the two. A subsequent denial in a Reuters story that "A financial stake is out of the question at the moment", does little to dispel the rumour. Were it not for the last three words of that statement the rumour would lack credibility.
There is certainly logic for a deeper partnership - and the two have danced this waltz before. Equity involvement from airlines can cement partnerships, add to board influence and partially allow one side to gain financially from any matter it feels it is compromising away. Nevertheless, there are obstacles to a full blown merger, and even to Etihad's taking a 30% to 40% stake. A marriage between the new bedfellows does not seem an immediate prospect. Nonetheless the logic is there for a move; and the mere fact of a potential move is sufficient to rock the equilibrium.
Lufthansa and Etihad bedfellows - at last - but unions may make marriage a distant prospect
There can be no understating the symbolic change in mindset of Lufthansa agreeing to partner with Etihad. Lufthansa has spent the better part of a decade rallying against Gulf airlines to the press, lobbying in Europe's power corridors and seeking a range of aeropolitical measures to wind back new competitors. Etihad has been the prime target for its investment and ongoing top-ups in a range of European airlines including Lufthansa's home competitor, the failing airberlin. Despite that, it is not well known that the two have come close to a liaison before, suggesting that each sees an intrinsic logic in a relationship.
The partnership has potential to be more significant than Emirates-Qantas, Qatar-IAG or Etihad-AF-KLM. But for now it is limited in scope and caution should be exercised in extrapolating too far at this stage.
Lufthansa CEO Carsten Spohr is seeking new growth platforms that sidestep the flagship business' uncompromising unions who would seemingly prefer a status quo that exists only in memory. Their support will be necessary if the partnership is to work and grow. Then Lufthansa, which has rallied the Star Alliance and JV partners against Gulf airlines, will need to explain its change of heart. For now Lufthansa will not partner on Etihad's beyond-Abu Dhabi network, a move that would embrace the fundamental business plan of Etihad and peers. That upside remains a matter for speculation.