Etihad buys 40% stake in Air Seychelles

Etihad's investment of $20m in Air Seychelles is to be matched by an equal capital injection from the government of Seychelles, the Abu Dhabi-based carrier said in a statement. Etihad is also providing a "shareholder's loan" of $25m "to meet working capital requirements and support network development".

Etihad said it will seek to increase its flights between Abu Dhabi and Mahé to a daily service, as well as provide new services to the islands.
"This deal is consistent with our approach to expansion, which relies on the strength of strategic partnerships across the globe," said James Hogan, the president and chief executive of Etihad.

The acqusition comes just five weeks after Etihad announced it would pay $95m to increase its stake in Air Berlin to nearly 30%, becoming the largest shareholder in Europe's sixth-largest airline.

"Etihad's agreement to take a 40% slice of Air Seychelles demonstrates the Abu Dhabi carrier's decision to grow through acquisition as well as organically," said Saj Ahmad, chief analyst for StrategicAero Research.

Earlier this month Air Seychelles halted its flights to Paris, London, Rome and Milan citing weak demand for its European services. The airline described these cuts as "part of its restructuring and repositioning process to turn into a regional airline".

"The aviation industry is under enormous pressure right now, with small airlines especially vulnerable to global economic instability and continuing oil price volatility," said Joel Morgan, the Seychelles minister of home affairs, environment, transport and energy. "In this context, consolidation offers the best possible solution for Air Seychelles."

Acquisition poses risks

Buying stakes in struggling carriers can pose obvious risks, and some analysts were critical of Etihad's decision to acquire a stake in Air Berlin, which Royal Bank of Scotland called "an irrational move by a very well-funded business, seeking to expand its footprint globally".

But Ahmad believes the Abu Dhabi carrier's purchase of a stake in Air Seychelles makes sense for several reasons. "Not only does Etihad benefit from a financial stake that it can sell off if plans don't work out, it has the ability to leverage Air Seychelles regional services to further connect its customer base to another part of the map. Given that Air Seychelles has relied on leisure and tourism traffic for years, Etihad brings a new dimension to this partnership with higher fare paying, high yield business passengers coming to the Seychelles. It's clear that Etihad is biting off a big chunk of another carrier here, but the benefits, on the surface, appear to outweigh the risks," he said.

Etihad's decision to expand via acquisitions is in contrast to the approach taken by Gulf rivals Emirates and Qatar Airways as they have focussed on growing organically. Whether they choose to follow Etihad's lead in this area remains to be seen.

"These recent moves by Etihad will not have gone unnoticed in Dubai and Doha," Ahmad noted. "While Qatar Airways recently struck a deal to take a stake in Cargolux, Emirates divestiture of Sri Lankan means that there could well be strategic purchases by the other two big GCC players. As to who they gun for and at what price is questionable, especially since Qatar Airways and especially Emirates have been committed to organic growth in a big way."