It’s no secret that Etihad Airways’ financial performance has been really bad (and we mean really bad) the last couple of years. In June, the airline announced it had made a massive loss $1.52 billion USD last year – and that was considered an improvement on its 2016 results in which the Abu Dhabi-based airline group recorded a $1.95 billion deficit.
With financials that bad you’d have thought investors would be running a mile – but of course, the Etihad Airways Group is owned by the government of Abu Dhabi and luckily that’s an investor with very deep pockets. But even with almost guaranteed State investment, a new report predicts Etihad will remain loss-making until at least 2022.
The report comes from the highly respected Fitch credit rating agency who earlier this week released a briefing note on Etihad’s rating. The good news is that Etihad retains a credit rating of ‘A’ despite its losses – mainly down to the “consistent, timely and large-scale tangible support provided by Abu Dhabi” (as in, financial support).
Unfortunately, despite an ambitious turnaround plan, Fitch still expects Etihad to remain loss-making until 2022. The rating agency even warns the plan has a “high execution risk” with plenty of dangers that could delay Etihad from becoming profitable once more.
“The medium-term implementation (of the turnaround plan) will depend on oil price dynamics and the sector’s competitive environment,” the rating agency warned in the briefing note (oil prices have risen steeply over the last 12-months and remain stubbornly high).
“Etihad’s financials are very weak compared with Emirates and European peers,” the note continued, concluding the carrier will remain the smallest of the Middle Eastern Big Three airlines although Fitch admitted that Etihad’s operations will remain “sizeable”.
Earlier this year, Etihad appointed Tony Douglas as its new Group Chief Executive – He was headhunted from the UK’s Ministry of Defence where he previously led procurement. Douglas has focused on a much more conservative business strategy than was once typical for Etihad – with plans to reduce capacity by 2.4% in 2018.
There’s little chance of Abu Dhabi letting Etihad fail but, hypothetically speaking, what would happen if the rich Emirate pulled the plug on the national airline? On this subject, Fitch predicts near disaster.
“We assess the socio-political implications of Etihad’s hypothetical default as strong,” the report reads, noting the airline is of “vital importance” to Abu Dhabi’s 2030 vision. With over 24,000 employees, including many Emirati’s in senior leadership positions, the chance of Etihad planes disappearing from the skies is unthinkable.
