Etihad On Hook For Alitalia & Airberlin Related Bonds (Reuters)

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Seems that Etihad won’t get away from its liabilities with Alitalia and Airberlin after using billions to shore up the equity on both airlines before they collapsed. Airberlin was liquidated while Alitalia continues to fly while they try to find yet another buyer for the airline (perhaps hopeless process).

Etihad Upside Down

Now, there are $1.2B in bonds issued in Amsterdam by “special purpose vehicle” SPV Equity Alliance Partners (EAP) that is linked to Etihad according to Reuters that will have soon trouble meeting its payments due to both Alitalia and Airberlin each owning roughly 19% of the obligations.

You can access the Reuters piece here of which below is an excerpt:

Etihad could now end up spending hundreds of millions of dollars to keep the bond structure alive, although it is not legally obliged to do so as there is no cross-default provision in the bond documentation, the sources said.

With more than $400 million of EAP debt in the hands of United Arab Emirates investors, there is political and reputational pressure on the Abu Dhabi carrier to avoid a default in March and Etihad is holding internal talks to assess whether and how to support the bonds, the sources said.

This would trigger a “remarketing event” in which defaulted debt obligations would be auctioned for cash, according to the documentation of the EAP bonds, a $700 million bond maturing in 2020 and a $500 million bond due to be repaid in 2021.

Etihad spent billions of dollars on airline acquisitions that failed to deliver expected returns. The state-owned airline once owned minority stakes in eight other carriers.

Conclusion

Better cut those luggage allowances, devalue the frequent flier program and lower the on board product to pay for the mismanaged shopping spree that the previous CEO engaged in.

This will be a perfect business school case how terribly someone can waste billions by investing in second and third rate airlines that have never been profitable and eventually collapsed.

Let’s see if the sheikhs will open their wallets and prop up the finances yet again to keep this “special purpose vehicle” above water or otherwise there may be many angry investors on their home turf that end up losing money.

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