Sep 21: Airline giant Emirates is reportedly in talks with the Etihad to take over the latter. If this happens, the new entity will become the world’s biggest carrier by passenger traffic. The talks about the acquisition are still going on between the two airline companies. The news is that the maintenance arm of Etihad will remain within itself.
Though both the airlines denied commenting on the acquisition, reports suggest that if the deal is pulled off, the airline will overgrow the American Airlines Group Inc. The American airline company holds a market value of $19.2 billion.
Meanwhile, another report added that Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Tim Clark, President at Emirates played soft on the rumor about the airline combining with its rival. Sheikh Ahmed’s statement in May was that the companies had never talked about merger plans while Clark in June said that he saw nothing happening in the short-to-medium-term.
The deal will require the permission of the rulers of the richest sheikhdoms in the United Arab Emirates. Both the airlines have been rivaling each other from the beginning, competing to appeal the same transfer travelers who are making long-distance journeys between Asia and the West.
The merger of the airline companies will be another sign of the sheikdoms uniting businesses to improve competitiveness. In 2013, Abu Dhabi and Dubai companies together formed Emirates Global Aluminium in a $15 billion combination. Emirates Global Aluminum is one of the world’s largest producers. Apart from this, the Dubai government had a crucial role in making airline giant Emirates cooperate with local discount carrier FlyDubai.
The news is not quite great when it comes to Abu Dhabi based carrier Etihad. Post the failure of the equity alliance strategy, Etihad had reduced its operations. In the strategy, the company made investments in a number of generally ailing foreign companies in order to help feed more traffic through Abu Dhabi. Air Berlin Plc which was one among the companies in which Etihad invested went down last year. Another company backed by Etihad, Alitalia hailing from Italy filed for bankruptcy protection which in turn caused the unraveling of the deal.
Moreover, the company’s business too went down as the reduced price of oil led to a drop in travel in crude-based economies. In 2017 the company faced a loss of $1.52 billion making a shortage of around $3.5 billion. According to the Fitch rating in August the company will go on losing money through 2022.
Dubai based Emirates also suffered during the Gulf slump but it recovered quickly with the retrieval of oil price and local economies. By the fiscal year end on March 31, the net income increased by two- third to 4.11 billion dirhams ($1.12 billion).
Tony Douglas, who took over as the Group Chief Executive Officer at Etihad in January was struggling to keep the company floating by letting go of the weaker sections while pairing back the fleet in order to cut costs, enhance revenues and increase cash flow. In June he disclosed that all the measures taken were just primary steps.
The main aim of Etihad now is to drive Abu Dhabi’s tourism sector and foreign commercial links. After concluding that doubling up the fleet is not practical anymore, Douglas has been negotiating with Airbus SE and Boeing Co. raising questions about the scores of wide-body jet orders.
The new entity formed after the merger will overgrow the presently leading airline company. How much of Etihad’s operations will be reduced post the merger is not clear. According to IATA, Emirates is currently the biggest airline on international routes and ranks fourth overall after the top three US carriers.