Nico+BezuidenhoutFast-expanding Gulf carrier Etihad Airways PJSC has the option of taking a stake in unprofitable South African Airways as the latest in a string of purchases that included a multi-billion-dollar investment in Alitalia SpA.

Etihad, one of three Middle Eastern carriers transforming the airline industry with vast fleets of wide-body planes, could buy a minority holding, acting SAA Chief Executive Officer Nico Bezuidenhout said today. For South Africa, a deal would also advance the biggest asset-sale program in a decade.

James Hogan, Etihad’s CEO, is pursuing a unique strategy of snapping up stakes in ailing carriers, feeding traffic to its hub inAbu Dhabi while providing financial support, economies of scale and managerial advice for members of his so-called equity alliance. South Africa is seeking investors for a business that Public Enterprises Minister Lynne Brown said is “technically bankrupt,” while seeking funds to help solve a power crisis.

“Etihad as a carrier is well known to take minority stakes in various entities and that option would be available to Etihad,” Bezuidenhout told reporters in Johannesburg, adding that a potential deal could also include closer commercial ties.

90-Day Strategy

While ownership limits mean Etihad does not have outright control of the carriers, the stakes give it sway to improve management and influence strategy. At Air Berlin Plc, the German short-haul and leisure carrier trying to overcome losses, Etihad is directly participating in a financial rescue.

SAA is surviving off state-guaranteed loans and has presented a 90-day rescue strategy to the government that includes 1.3 billion rand ($113 million) in annual savings and a review of some long-haul routes.

The carrier will save 507 million rand by immediately reconfiguring its network, 250 million rand from suppliers and around 300 million rand from restructuring aircraft leases, Bezuidenhout said. SAA will not target job cuts during the three-month strategy proposal.

South Africa also wants to sell stakes in companies to help raise at least 20 billion rand to finance a bailout of power utility Eskom Holdings SOC Ltd. (TKG), Finance Minister Nhlanhla Nene said Oct. 22.

The government sold 20 percent of SAA in 1999 to Swissair, which pioneered the concept of an alliance anchored via minority stakes, only to buy the shares back in 2002 when the European carrier went bankrupt.

Etihad, which didn’t respond to e-mails seeking comment on SAA after hours in Abu Dhabi, says its strategy has expanded the wider network to 400 destinations, allowing the youngest — and smallest — of the three major Gulf carriers to compete with Dubai-based Emirates and Qatar Airways.

 

 

Source:Bloomberg

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