07/02/2014 09:12 AST

A potential deal to buy a stake in troubled Italian airline Alitalia could be the biggest test yet for Abu Dhabi-based Etihad’s strategy of using stakes in ailing airlines as an easy way to expand its global footprint.

Etihad’s collection of minority airline stakes stretches from the Seychelles to Ireland and Australia, and dates back to the purchase of an almost 30% stake in Air Berlin at the end of 2011.

What Etihad calls its “airline equity alliance” strategy differs from that of larger regional rivals Emirates, which is striking out on its own, and Qatar Airways, which in a surprise move, turned to the OneWorld airline alliance last year to boost its network coverage.

Lacking large populations in their own countries, the Gulf airlines need to feed more traffic from other countries through their hubs in order to fill their planes after a massive order spree at last year’s Dubai air show.

Etihad, which has driven restructuring and job cuts at Air Berlin and Air Serbia, has via the equity stakes and code shares diverted more passengers from its partners’ planes to its Abu Dhabi hub while avoiding the costs that being a member of a traditional alliance entails.

“From the airlines they have acquired, we can see a regional spread across Europe and Asia-Pacific, giving them access to very populous countries, which brings more passenger flows and, ultimately, more sales to their operations,” Euromonitor analyst Nadejda Popova told Reuters.

In 2013, Etihad’s code shares with other airlines and its equity partners brought 1.8mn passengers onto Etihad flights, helping total passenger numbers rise 16% to almost 12mn. Emirates carried 39mn passengers in its 2012/13 fiscal year, also a 16% increase.

The equity stakes strategy could also bring procurement benefits, analysts said, because by agreeing contracts that cover its equity partners, Etihad can ask for better deals when it comes to buying planes and services such as maintenance, IT and catering.

“When we sit down with Boeing or Airbus, our discussions are now about 500 aircraft, it’s the same with the engine makers,” Etihad chief executive James Hogan said last month at an event in Berlin.

Hogan said that the $105mn to buy a 29% stake in Air Berlin was recouped within 6 months thanks to additional revenue and cost savings. However, the airline has since given a €195mn loan to Air Berlin and spent another €184mn on buying a 70% stake in its Top bonus frequent flyer programme.

Investing in Alitalia would be Etihad’s first sizeable investment in a European legacy carrier though and brings with it a host of thorny issues that other potential investors such as Air France-KLM have not been able to resolve.

Alitalia and Etihad are in the final stages of due diligence and sources close to the matter say a deal could involve Etihad buying a 40% stake for as much as €300mn.

Etihad has said it will only invest in Alitalia if it fits with its network, if Alitalia has a credible plan to return to profit and can bring it synergies.

“Any issues that may prevent the establishment of an appropriate business plan will have to be resolved to ensure the plan can be implemented to move Alitalia to sustainable profitability,” the two companies said on Sunday.

Alitalia offers access to Europe’s fourth-largest travel market and flies 25mn passengers a year. But the airline loses €700,000 a day and has net debt of more than €800mn. Alitalia completed a €300mn capital hike in December, which analysts said then would keep it flying for six months.

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