Alitalia and Etihad have confirmed a strategic tie-up under which the Abu Dhabi-based carrier will acquire a 49% in the Italian carrier for €388 million ($520 million).

After months of negotiations, the two carriers have struck a deal to invest €1.76 billion in the Italian flag carrier.

Etihad will invest €560 million through a combination of equity injections, asset purchases and other financing facilities and funding arrangements to restructure the airline’s balance sheet.

A further investment of €300 million will come from existing Alitalia shareholders, including €88 million from Intesa San Paolo, €75 million from Poste Italiane, €63.5 million from UniCredit , €51 million from Atlantia, €10 million from IMMSI, €10 million from Pirelli and €2.5 million from Gavio.

Additionally, €598 million in financial restructuring of short- and medium term debt has been provided by financial institutions and existing bank shareholders, the two carriers said, and a further €300 million of new loan facilities have been extended by Italian financial institutions.

Within the €388 million paid by Etihad for the 49% share in Alitalia, €113 million is to acquire a 75% stake in Alitalia Loyalty, which operates the MilleMiglia frequent flyer programme.

A further €60 million covers the purchase of five of Alitalia’s slots at London Heathrow. These will be leased back to the Italian carrier by Etihad.

Changes to Alitalia’s route network include new routes from Rome and Milan with the aim of implementing “profitable growth of long-haul flying from both Rome Fiumicino and Milan Malpensa”.

From the summer of 2015, Alitalia will implement connections between other Italian cities and Abu Dhabi, with plans for direct flights from markets such as Bologna, Catania and Venice.

Alitalia’s cargo business will be relaunched and expanded, with a centre of excellence to be established in northern Italy as well as investment in handling capabilities at Italian airports and optimisation of an integrated cargo network.

A rebranding programme will commence at Alitalia in the first quarter of 2015.

Etihad chief executive James Hogan says the two carriers will implement a three-year restructuring programme at the Italian flag carrier with the aim of making it profitable by 2017.

“For Etihad Airways, this is a strategic, long-term commercial investment. On completion, we are committed, with the other shareholders, to build a reinvigorated Alitalia as a competitive, sustainable and profitable business that can operate successfully in the global air travel market”, Hogan says.

“The possibilities when we knit together our network with those of our existing equity partners, including Air Berlin, Air Serbia, Etihad Regional, Jet Airways, Virgin Australia, Air Seychelles and Aer Lingus, and of course our strategic codeshare partner KLM-Air France, will provide the most compelling customer offering.”

Source: Cirium Dashboard