In 2011, Etihad Airways Chief Executive Officer James Hogan hatched a bold strategy to catch up with the airline’s more established Gulf rivals: buying stakes in smaller, cash-hungry carriers across three continents to cobble together enough passengers to propel the Abu Dhabi-based company into the ranks of the global aviation elite.
But after more than $4 billion of share purchases, bond buyouts and other investments, the wannabe airline superpower has little to show for its long-odds gamble.
“Etihad was seeking the equivalent of five years of organic growth overnight, but shortcuts in aviation rarely work,” says aviation analyst Mark Martin, who heads Dubai-based Martin Consultancy LLC. “Mostly you’re buying into bad debt, bad mistakes—and skeletons in the cupboard.”
That reality hit home on May 2 when Italy’s Alitalia SpA, in which Etihad holds a 49 percent stake after pouring in about €1 billion ($1.1 billion), filed for bankruptcy amid mounting losses. Meanwhile, Air Berlin Plc, the biggest beneficiary of Etihad’s largesse after receiving $2 billion, is bleeding red ink after being caught in a squeeze between lower-cost carriers and number one German airline Deutsche Lufthansa AG. More info