Emirates airline Etihad Airways tied up a deal to rescue debt-laden carrier Alitalia on Wednesday by taking 49.0 percent of the Italian company.
The two groups gave no details of the value of the deal or of any conditions, but two key issues are debt of about 1.0 billion euros ($1.36 billion) and overstaffing at Alitalia.
The government has warned that this is the last chance for Alitalia which has lurched from crisis to crisis for years.
A stake of 49.0 percent means that Alitalia retains its advantageous status as an European airline.
The deal, concluding tough negotiations which began at the end of last year, means that Etihad Airways is in effect rescuing Alitalia, playing a role which Air France once considered but then dropped because of the scale of the problems.
Alitalia, rescued several times over several years, is again in dire straits.
If it had gone bankrupt, the fall of this high-profile name would have had a severe financial and psychological impact on Italy which is struggling to climb out of a deep recession lasting more than two years.
The agreement also marks a big step in the rise of Etihad Airways as a young and rapidly growing company.
It now becomes a key shareholder in one of the old names of European aviation, and increases its reach into European markets and global routes.
Italian Transport Minister Maurizio Lupi said: “It’s increasingly clear that this marriage must be tied up because it is now obvious to everyone that it amounts to a big industrial investment with concrete chances of development for our company.”
Etihad has insisted that the debt be restructured.
Alitalia is now in the hands of private shareholders, but has its roots in the days when most European countries had their own state-owned airlines.
The debt and staff cuts are believed to have been central sticking points in the negotiations, but the breakthrough came late on Tuesday at a meeting between banks and shareholders.
Alitalia employs 12,800 and it is believed that about 2,200 jobs will have to be axed.
Etihad Airways has expanded rapidly in recent years, largely on a rise of air travel in the Gulf region of the Middle East.
In a joint statement, the two airlines said they had agreed the “terms and conditions of a proposed transaction whereby Etihad Airways will acquire a 49 percent equity stake in Alitalia.”
They said they would tie up the deal as soon as possible subject to approval from regulators.
– Etihad, ‘or the abyss’ –
The chief executive at Alitalia, Gabriele del Torchio, said early in June that Alitalia would have to face a “complex, exhausting and painful” restructuring, but that there was “no alternative”.
And he mentioned 2,200 job cuts.
Lupi, in a warning on Monday to Italian trade unions which are strongly opposed to job cuts, said that Alitalia had but two options: “the plan for recovery with Etihad, or the abyss.”
On June 11, Lupi mentioned that Etihad might make an initial investment of 560 million euros ($762 million). To this might be added “690 million euros in four years for the development and renewal of the fleet of aircraft.”
The prospect of Etihad as a key shareholder is causing deep concern in northern Italy with fears that it would reduce activity at Milan’s Malpensa airport.
The business plan for the new entity is believed to put an increased focus on on long-haul international flights which are more profitable than short routes where low-cost competition is fierce.
Etihad Airways already has already expanded in Europe, acquiring 29 percent of Air Berlin and 3.0 percent of Irish airline Aer Lingus. It also owns 40 percent of Air Seychelles and 19.9 percent of Virgin Australia.
Alitalia is owned by about 20 companies, all of which are private except the Italian postal service Poste Italiane which acquired an interest of 19.48 percent last year during a capital increase.
Italian bank Intesa Sanpaolo owns 20.59 percent and UniCredit bank 12.99 percent.
Air France-KLM refused to participate in the capital increase and so its holding fell from 25.0 percent to 7.08 percent.