Etihad Airways is to increase its stake in Air Berlin to 29%, making it the largest single shareholder in the German carrier.
Abu Dhabi-based Etihad has an existing 2.99% stake in Air Berlin, which it will boost to 29.21% through a new share issue by Air Berlin. The shares will be issued at a price of €2.31 ($3).
Under the agreement, Etihad will invest up to $255 million in Air Berlin over five years to support its fleet development and future network growth.
Air Berlin will move its Middle East operation from Dubai to Abu Dhabi and will operate four Airbus A330-200 flights a week between Berlin and Abu Dhabi from 15 January 2012.
The two carriers will begin an extensive codesharing partnership, and the airlines' frequent flyer programmes will be integrated. They will seek antitrust immunity to enable them to co-ordinate their route networks and sales and marketing activities.
Through the deal, Etihad will gain two seats on Air Berlin's board.
"The strategic partnership with Etihad Airways opens up enormous opportunities for the future of our company," said Air Berlin chief executive Hartmut Mehdorn.
"This applies especially to future market development and the realisation of synergies. One of the key components of the new partnership is the launch of Air Berlin services to Abu Dhabi, which will become our new gateway to Asia and Australia."
Added Etihad chief executive James Hogan: "This new partnership expands our network reach, gives us access to 33 million new passengers, and provides us with a real opportunity for global growth. Through Air Berlin, we gain immediate access to a broad and complementary European market, with outstanding connectivity options for customers of both airlines.
"We now have a portfolio of 34 quality airline partners, but this is our first equity investment in another airline. It is a sign of our confidence in Air Berlin's management and in the carrier's potential to grow with us."
Hogan added that Etihad and the Air Berlin group carry a combined total of more than
40 million passengers a year, operate 233 aircraft, and employ 18,000 people.
"Together, the companies generate more than $9 billion in revenues. We estimate each airline could achieve incremental revenues of between €35 million and €40 million just in the first year, and we believe the partnership has enormous potential to unlock a range of efficiencies," said Hogan.
Air Berlin is currently undergoing a major cost reduction programme in a bid to return to profitability.