Etihad faces heat over ‘state funding’

Etihad Airways had access to an interest-free $3 billion loan from Abu Dhabi’s ruling family, the Australian Financial Review newspaper said on Thursday, prompting criticism from rivals that have long complained of state support for the carrier.

Citing what it said were leaked documents prepared for prospective financiers in 2011, the newspaper said the loan for government-owned Etihad required no repayments until 2027.

The airline, which also has equity stakes in Air Berlin and Aer Lingus, has long rejected allegations from rivals in Europe and Asia that it receives unfair financial support or state subsidies.

In a slide headed “Equity and Shareholders Loan,” the documents state: “The shareholder has provided significant loan facility for aircraft deposits and working capital – subordinated, interest free and no repayments until 2027.”

Etihad, which has been looking at a possible investment in loss-making Alitalia, said in a statement it had received financial support from its shareholder in the form of equity capital and shareholder loans, but gets no government subsidy.

It said the airline operated under a strict commercial mandate. It did not specifically comment on the $3 billion loan mentioned in the report.

Europe’s largest airline Lufthansa, one of the biggest critics of state-owned Gulf carriers, renewed calls for EU authorities to ensure fair market conditions.

“It is crucial that the European Commission and the authorities in the European member states protect their private European airlines and European hubs from unequal competition from state-run air traffic systems,” a spokesman said.

“We reject subsidies and the partial nationalisation of European airlines, whether they come from European states, or states or state-owned entities from outside of Europe.”

Etihad, and other state-backed regional carriers such as Emirates and Qatar Airways, have been rapidly expanding their global reach, sometimes through partnerships.

European airlines have questioned this growth saying their state-owned status meant they did not compete on a level playing field.

A spokesman for German pilots’ union Vereinigung Cockpit said of the newspaper report: “If it’s true, then it’s what we’ve always feared.”

“We already know we are competing with society systems that don’t have unions or income tax. It’s not a level playing field,” Joerg Handwerg told Reuters at the Berlin ILA Airshow.

Air Berlin, in which Etihad has a near-30 percent stake, declined to comment.

The latest clash comes ahead of the International Air Transport Association (IATA) annual general meeting to be held next month in Qatar, the first Gulf country to host the event which will host over 200 top executives from airlines, manufacturers and airport operators.

Etihad is a major shareholder in Virgin Australia Holdings , which has been engaged in a fierce price and capacity war in Australia with flag carrier Qantas Airways Ltd.

Qantas has long complained that Etihad, and by extension Virgin, have benefited from subsidies from the Gulf state, something Etihad management has repeatedly denied.

The newspaper said industry sources had provided the documents, which had circulated among the management ranks of Etihad’s competitors, such as Qantas and Emirates.

The Australian and International Pilots Association said the report of support from the royal family needed to be checked and action taken to level the playing field.

“Etihad’s contribution to Virgin’s A$350 million ($323 million) equity issue last year was critical to the issue’s success. We now know this contribution was backed by the interest-free generosity of the Abu Dhabi royal family,” said the association’s president, Nathan Safe.

“Such an obviously unfair distortion of competition would never be allowed in any other sector of the Australian economy and it should not be allowed to continue in aviation.”

Virgin Australia did not comment on the report.-Reuters