Etihad Airways is in the process of selling its 40% stake in Air Seychelles for $1, and the airline will forgive over $60 million in debt in the process. Ahem, Etihad, OMAAT is looking for some new investors, please give me a call at your earliest convenience. 😉
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Etihad sells Air Seychelles stake to government
Etihad purchased a 40% stake in Air Seychelles back in 2012, as part of its global investment strategy at the time. This was when Etihad was essentially trying to take over the aviation world and build a fourth major alliance, known as Etihad Airways Partners.
For quite a while there have been rumors of Etihad looking to sell its stake in money-losing Air Seychelles, and that’s now official.
It has been announced that the government of the Seychelles and Abu Dhabi-based Etihad have reached an agreement for the government to once again take full control of the national airline. With this deal:
- The government of the Seychelles will once again own 100% of the airline
- Air Seychelles owed $72.3 million to Etihad, but that will be written down by 79%, so Etihad will only get paid $11.34 million, with repayment to start in 2022
- A total of $71.5 million is still owed to bondholders, and the government of the Seychelles is proposing paying just $20 million for that debt
- The government of the Seychelles is holding discussions with Trade Development Bank for a loan to be taken by the government to pay bondholders and Etihad
- All of these liabilities will be taken over by the government, wiping out Air Seychelles’ liabilities
The amount of debt we’re talking about at Air Seychelles is absolutely wild when you consider how small the airline is — Air Seychelles operates a fleet of just two Airbus A320neos, and five DHC-6-400 Twin Otters.
The backbone of Air Seychelles’ fleet
Etihad’s beyond disastrous investment strategy
With Etihad selling its stake in Air Seychelles, the carrier’s nightmare attempt at investing in other airlines is more or less over. Remember when Etihad Airways Partners was a thing?
Etihad Airways Partners of the past
Well, how’s that looking now?
- airberlin liquidated
- Jet Airways liquidated
- Etihad gave the Italian government its stake in Alitalia, and Alitalia is… well… being Alitalia
- Virgin Australia entered voluntary administration, and now has new owners
Remember Jet Airways?
At this point the only remaining Etihad airline investment is in Air Serbia, though that stake has been reduced from 49% to 18%, and Etihad is reportedly looking to sell its stake in the airline as well.
I mean, I have to give Etihad credit — I don’t think I’ve ever seen an airline light money on fire as well as Etihad did under James Hogan’s leadership. Like, my dog Winston could have invested that money better than Etihad did. Heck, I think investing in Global Ghana Airlines and Baltia would have offered a better rate of return.
I’m surprised Etihad didn’t buy a stake in Goldstar Air
Can you believe that people were paid money to execute this strategy?
Now, while I’m (justifiably, I think) ragging on Etihad, I do want to note:
- This was all done under the previous management team’s watch, and the current management team is doing an amazing job cutting costs and being more realistic (for better or worse)
- I imagine the old strategy was also largely about soft political power, and I suspect Hogan had the backing of the Abu Dhabi government to light money on fire, until they changed their mind and decided they no longer wanted to fund this vanity project
Etihad is now going the other extreme, retiring A380s
Bottom line
Etihad is selling its stake in Air Seychelles for $1, and is forgiving over $60 million in debt in the process. At this point Etihad’s only remaining airline investment is in Air Serbia, where the carrier has an 18% stake, but it’s looking to get rid of that as well.
It’s amazing how much of a mess Etihad’s current management team is having to clean up…
What do you make of Etihad dumping its stake in Air Seychelles?
We will see a lot more government ownership in the airline and presumably also hotel industry, over the next years. If governments have not directly recapitalized the airlines through shareholdings (e.g. AF, NZ), they often have a debt for equity clause in case the loans stop performing (e.g. LX).
@ nate nate
I never said anything about whether it is a good idea to spend the $1 to buy back 40% of the equity. I am just pointing out how incorrect your comment was. So stop changing the subject.
I have no idea what you are talking about "the buyer is guaranteeing certain debt payments", you don't even understand who is guaranteeing what!
@ alinsfca, so what good is buying the equity for $1if you have to declare bankruptcy and give up the equity to bondholders?
The buyer is guaranteeing certain debt repayments, so it should be considered part of the purchase price.
"Ahem, Etihad, OMAAT is looking for some new investors, please give me a call at your earliest convenience"
Two years after Etihad's investment, OMAAT shuts down.
"Well, how’s that looking now?"
Don't forget Niki, another casualty...
Air Serbia will be the last non-Etihad airline still standing in Etihad Airways Partners, but that isn't saying much. At the height of their association with Etihad years ago, they had a really good European business class product. Above...
"Ahem, Etihad, OMAAT is looking for some new investors, please give me a call at your earliest convenience"
Two years after Etihad's investment, OMAAT shuts down.
"Well, how’s that looking now?"
Don't forget Niki, another casualty...
Air Serbia will be the last non-Etihad airline still standing in Etihad Airways Partners, but that isn't saying much. At the height of their association with Etihad years ago, they had a really good European business class product. Above average food in both quality and quantity, and with real business class seats. Since Eithad decreased their funding, Air Serbia's food is now worse than Lufthansa's, and their real business class seats are gone; their seats are now the same economy-with-a-blocked-middle-seat in business class as most European airlines offer.
Does anyone know if their flights to NYC still offer good food, or has that been another casualty of Air Serbia's downgraded budget?
Not a good optic, Ben, lol.
"Ahem, Etihad, OMAAT is looking for some new investors, please give me a call at your earliest convenience. ."
Whether joking or not.
Sounds like the Swissair strategy dictated by McKenzie guys. How can you bring the professional culture of such airlines to the likes of the companies and their unions they bought. Impossible in my humble opinion
Lucky
This question is not related to Etihad, that said, what is Winston's take on GameStop?
Hogan and his ex GULF AIR mates ran ETIHAD as a vanity project that has spectacularly failed.
How did he get his job in the first place is a mistert considering his record at both BMI and GULF AIR.
Although my direct knowledge is 12 years out of date I have an amusing tale to try to explain how the UAE works.
Sheikh Zayad of Abu Dhabi (Al Ain) had a vision to create a country from the 7 "trucial states" that existed before Dec 2, 1971.
Abu Dhabi Emirate had the oil, Dubai had trade and the others had basically nothing. Sheikh Zayad thus was appointed leader. Dubai, because of an existing economy...
Although my direct knowledge is 12 years out of date I have an amusing tale to try to explain how the UAE works.
Sheikh Zayad of Abu Dhabi (Al Ain) had a vision to create a country from the 7 "trucial states" that existed before Dec 2, 1971.
Abu Dhabi Emirate had the oil, Dubai had trade and the others had basically nothing. Sheikh Zayad thus was appointed leader. Dubai, because of an existing economy and some interesting history, was allowed to appoint the deputy leader (or they wouldn't join).
The UAE is a family owned business. All income (at least Abu Dhabi's fossil fuel income) comes directly to Sheikh Zayed (and now Khalifa). It is then distributed to the various Emirates and Sheikhs.
Abu Dhabi considers itself historically and economically to be the Capital City and head Emirate of the UAE.
Abu Dhabi had a national airline formed in 1973 with the following countries participating; Abu Dhabi (for the UAE), Bahrain, Oman and Qatar, Gulf Air was the National Airline of the UAE and was a very pleasant way to fly.
Dubai has always suffered from an inferiority complex so Sheikh Makhtoum decided to start their own airline - Emirates. It was created in March of 1985 and started an expansion program the like of which nothing compares.
Eventually the world became convinced that EK was the national airline which put a few noses out of joint. In 2003 the UAE decided to create a National Airline, Etihad, and appointed a relative of Zayed to oversee the project.
Abu Dhabi has never had the glitz and glamour of Dubai so was never able bring itself to allowing the huge number of foreign visitors that Dubai encouraged to come, visit and eventually invest in the housing market. For a number of years visitors to Abu Dhabi had a difficult time even obtaining visas to visit. So EK had huge numbers of tourists and transit passengers to expanded their numbers of aircraft exponentially.
From 2002 - 2006 James Hogan led the spectacular rise of Gulf Air to a respectable airline. In 2006 he was offered the CEO position at Etihad and decided to continue his career with EK. He was charged with the challenge of making Etihad "another Emirates". History has shown that it was too late to challenge the behemoth EK. Hindsight from Ben suggests that it was his failure, but the reality is that there was little choice.
So it seems that Abu Dhabi has decided not to challenge Vegas East to become the most glitzy destination in the world and now wants Etihad to become a profitable and respectful airline.
Hopefully it will work out as passing through Dubai is an experience for the young.
I still fondly remember the days when i could park my car under a tree at AUH in early July and pick it up in mid August for free. There were also days when we parked across the street from DXB for the same length of time - but almost got a ticket because the car was "dirty".
@Nate nate
Wow, what kind of financial talk is that!
Equity and debt (bonds) are separate. The $1 is to buy the 40% equity ownership from Etihad.
Whether Air Seychelles buys back the 40% or not, the airline (not the future owner) still have to repay the loan to Etihad and other investors, or may be not. If the airline don't pay it back they may just have to declare bankruptcy or as in this case renegotiate the payment terms, and the equity owners may get nothing.
@Nate nate - you had me at repaying bondholders... but now you cite factual gov't debt repayments?!
please don't stop, because economics
@Jerry, Chef’s kiss!
If Etihad buys you, that's fine. Just don't disable comments, and understand that we're not interested in an article about "Best Places to Visit in the European Union." However, if you get a free limo ride to the BAFTAs paid for by Hyatt, I'd be supportive of that.
@Another Dubya,
How do you reconcile your statement with
- Qatar Airways owning stakes in IAG, LATAM, Cathay Pacific, and China Southern, which seems like a successful strategy
- Fannie Mae and Freddie Mac paying the US Treasury a total of $292 billion profits 2012-2019, exceeding the $191.5 billion in government support they received
That's what you get with government entities with no profit motive making investment decisions. Yeah, we need even more of that here.
I hope OMAAT's finances are better than any of Etihad's partners'.
Like, my dog Winston could have invested that money better than Etihad did. HA!
Its $1 + $11.34m + $20m, right? The future owner has to repay Etihad and bondholders.
Great headline, but you have the economics wrong.
A partial ownership stake in OMAAT probably isn't the worst investment for an airline. With a coordinated campaign, they could really corner the market on "influencers" driving revenue to them.
It could be small beans compared to their other advertising channels, or even augment their marketing strategy, especially if they're spending money on things like cobranded credit cards.
Had they bothered to ask me, I would have given them $2 for it, thats a 100% increase. Their loss.