Etihad expresses interest in Aer Lingus

Aer Lingus share price rose by more that 6% yesterday after Etihad Airways, the Middle East’s third-largest carrier, said it may invest in the Irish airline.

Etihad Airways posted a first annual profit and said it is mulling further purchases following an investment in Air Berlin Plc, with Ireland’s Aer Lingus Group Plc being monitored.

Abu Dhabi-based Etihad is “looking at a range of carriers” and would seriously consider one or two global opportunities to help feed its network, chief executive officer James Hogan said yesterday, adding that there are no advanced talks. Aer Lingus shares closed 5.2% up yesterday.

“We don’t enter an agreement to bail somebody out, we enter into an agreement to improve our top line and revenue and take out more cost,” Hogan said. “With Aer Lingus we have looked at top line, but haven’t entered into any advanced negotiations.”

Etihad’s most important growth driver this year will be its increased 29.2% holding in Air Berlin, acquired for $350 million (€263m) in equity financing and funds for planes, Hogan said, with the German discount carrier likely to contribute $50m in revenue. The Gulf company has a 40% stake in Air Seychelles Ltd, after a $45m deal last month.

Etihad’s investment criteria include a like-minded management and the ability to cut costs and achieve network integration, Hogan said, adding that Air Berlin, Europe’s third biggest low-cost operator, was tracked for three years.

“We monitor, we discuss these opportunities with the board,” he said. “With Air Berlin it gives us a fantastic feed out of Germany, Switzerland and Austria. The premise is it has to feed and integrate with our network.”

Etihad has a “very strong” commercial relationship with Virgin Australia Holdings Ltd and would “seriously consider” opportunities to deepen ties should that be possible, he said. Foreign ownership laws currently limit outside investment.

Etihad posted net income of $14m for last year, exceeding a target of breaking even, with sales 36% higher at $4.1 billion. Cost reductions shaved $187m from expenses.

Hogan said that the state-owned carrier is targeting revenue of about $5bn this year, including $700m from cargo. The passenger total should reach 10 million, he said, 1.8 million more than in 2011, with “a corresponding increase in profits,” as costs are reduced by 4.6%.

Etihad hedged more than 80% of its fuel costs last year, helping protect it from volatility in oil prices, and has a 75% hedging plan in place for 2012, it said.

The airline, which competes in the Gulf with Dubai-based Emirates and Doha’s Qatar Airways, has been expanding its global presence via new routes and planes, as well as stakes in other airlines.

Earnings before interest, tax, depreciation, amortisation and rentals were $648m, and Ebit was $137m.