Aviation Rescue: Emirates-Etihad shun mega merger reports, speculations unlikely to fade

Aviation Rescue: Emirates-Etihad shun mega merger reports, speculations unlikely to fade

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Emirates is owned by the government of Dubai, the region’s tourism hub, while Etihad is controlled by the government of neighboring Abu Dhabi, which thanks to oil exports is the wealthiest member of the United Arab Emirates.

Dubai-based airline Emirates has moved to quell fresh speculation that it is in talks to take over its struggling rival and near-neighbor Etihad Airways.

The ownership of the two airlines would make any merger politically sensitive. The two airlines have held preliminary talks over a deal which would create the world’s largest airline.

The report did not say how long such discussions have been going on for, but noted that any deal “would require the blessing of the rulers” of Abu Dhabi and Dubai.

A source close to Etihad on Thursday revealed that while a merger could conceivably happen in the future, Abu Dhabi would not quickly give up control of its airline and brand, especially after it had invested billions of dollars in its international airport and other aviation infrastructure.

A senior banker monitoring business in the Gulf said the idea of an Emirates-Etihad merger had been circulating “on and off for at least five years”, but that he hadn’t heard of any new development. No bank has been mandated to arrange a deal, which would be very difficult operationally, he added.

Both airlines, which grew rapidly earlier this decade, have faced financial pressures in the past two years because of tough competition in the industry and a regional economic slowdown due to low oil prices.

Earlier this year, the two carriers signed agreements to cooperate in some areas, such as a deal under which Etihad pilots can join Emirates on a temporary basis for two years.

However, Emirates chairman Sheikh Ahmed bin Saeed al-Maktoum ruled out a merger in May this year.

Emirates mainly operates alone – an approach that gives it control over its network and has helped it deliver 30 consecutive years of profit.

In contrast, loss-making Etihad built up a global network of partner airlines in which it invested; that strategy ran into trouble when two of the partners, Alitalia and Air Berlin, became insolvent. Now Etihad is shrinking operations in an effort to become a profitable mid-sized carrier.

As part of its restructuring effort, Etihad has brought in a new management team, cut unprofitable routes from its schedule and reduced its fleet of aircraft. That has left it with too many pilots on its books and during the summer it emerged that it had offered some of them a two-year secondment with Emirates.

There are some good arguments for the two carriers to be brought even closer together.

Emirates is far larger than Etihad. Emirates is hugely profitable, making a return of $1.1bn year. Its fleet of 268 Airbus A380 and Boeing 777 jets as of March 31 is roughly three times as big as Etihad’s, measured by number of aeroplanes.

Dubai and Abu Dhabi are both spending heavily on airport facilities. Dubai is developing a new airport that will one day be able to handle around 200 million passengers a year and replace Dubai International, currently the world’s busiest airport for international passenger traffic, as Emirates’ hub.

Even then, it would still be logistically difficult to make commercial sense of their overlapping structures. Both Dubai and Abu Dhabi have invested huge sums to develop word-class airports for their airlines, but the facilities are over an hour away from each other by road – too close to make flights between the hubs sensible but too far apart to make transferring passengers between them feasible either.

Meanwhile, a new terminal is scheduled to open next year at Abu Dhabi International Airport, where Etihad is based.

 

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