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Etihad Might Still Make Money Out of Alitalia – The Heathrow ‘Insurance Policy’

Etihad Might Still Make Money Out of Alitalia – The Heathrow ‘Insurance Policy’

Etihad Might Still Make a Profit Out of Alitalia - The Heathrow 'Insurance Policy'

There’s been plenty of speculation about Etihad’s relationship with failed Italian flag carrier, Alitalia recently.  On Tuesday, Alitalia filed for ‘Special Administration‘ – a form of bankruptcy, following a failed rescue bid by investors that included Etihad.

For the Abu Dhabi-based airline the losses could be enormous.  Back in 2014, Etihad invested a total of €560 million in a bid to turn around Alitalia’s fortunes.  It was, as the press release said at the time, a plan to “build a reinvigorated Alitalia as a competitive, sustainably profitable business.”

First, €387.5 million was spent to acquire a 49% stake in Alitalia.  Then Etihad pumped, even more, cash into Alitalia’s coffers.  Over 100 million Euros went towards a 75% stake in Alitalia Loyalty Spa – the financial division behind Alitalia’s frequent flyer programme.

Five Heathrow Slots for a Bargain Price

Finally, Etihad provided Alitalia with a further €60 million in capital.  That was in return for five pairs of landing and takeoff slots at Heathrow Airport – One of the most expensive airports in the world.  Alitalia has leased back the slots from Etihad ever since.

At the time, James Hogan, Etihad’s President and CEO said of the deal: “We believe in Alitalia. It’s a great brand with enormous potential. With the right level of capitalisation and a strong, strategic business plan, we have confidence the airline can be turned around and repositioned as a premium global airline once again.”

But Alitalia has now been forced to respond to speculation about the Heathrow deal.  On Saturday, the airline released a press release that stressed the sale was “fully transparent and at market prices.”  It went on to say:

“No observer, commentator or financial analyst at the time raised any concerns when those transactions were widely publicised in Italy and in international markets.”

Oman Air Broke Records when it Bought a Slot for $75 Million

Yet, €60 million for five pairs of slots still seems pretty good value.  At today’s rates that would work out to about $65 million USD or $13 million USD per slot.  Early last year, Oman Air broke a Heathrow record when it paid $75 million USD for just one landing and takeoff slot.  The sale smashed the previous record of $60 million USD which was set by American Airlines in 2015.

The slot Oman Air acquired was always going to be expensive.  Heathrow is full and expansion plans could still take years to come to fruition.  Add that to the fact, Oman Air bagged a prime landing and takeoff slot in the early morning and you begin to understand just how sought after these slots are.

But airlines can get a bargain from time to time.  Delta Air Lines bought a slot for just $19.5 million USD last year.  Although that only allows a 5x weekly service and it’s an unpopular, late morning time slot.

Heathrow landing slots could be worth more than the Alitalia fleet. Photo Credit: Alitalia
Heathrow landing slots could be worth more than the Alitalia fleet. Photo Credit: Alitalia

30 Airlines Waiting to Fly from Heathrow

The last international airline to get access to Heathrow Airport was Garuda Indonesia, last year.  Garuda had been waiting six years for the chance to fly from Heathrow.  There are currently 30 more airlines in the queue waiting for slots.

Of course, no one wants to see Alitalia go under but it looks like Etihad might have a lucrative insurance policy in its hands should the worst happen.  Admittedly, the Alitalia slots aren’t the best timed but €60 million would seem grossly undervalued for them – at least by today’s standards.

Etihad would have the choice of holding onto the slots for themselves or putting them up for sale.  A sale would likely be an attractive and easy option.

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