Hogan’s House of Horrors: Etihad, the weakest of the Big Three Gulf carriers, finds itself in a mess

For airlines on death’s doorstep, there was always one hope. Always one last chance of a lifeline. Always one last chance that the phone would ring, and on the other end would be James Hogan.

Hogan is the longtime chief of Etihad, a Gulf carrier with a penchant for purchasing stakes in dysfunctional airlines. Starting in early 2012, it bought minority stakes in seven other struggling carriers, three of them small— Air Seychelles, Air Serbia and Darwin—but the other four large players in large markets: Germany’s Air Berlin, India’s Jet Airways, Virgin Australia and Italy’s Alitalia.

But bad news for the rest of the airline world’s les miserables: Etihad’s free-spending ways are all but assuredly over. Its most recent investment—in Alitalia— came in 2014, a year that history will likely see as a major inflection point for Gulf carriers. It was the year, most importantly, that the long oil boom came to an end, an oil boom that fueled the rise of the Gulf carriers in the first place. The oil boom, in turn, was part of a broader commodity boom that lifted national incomes across the planet, generating all sorts of intercontinental traffic flows through the Middle East.

Etihad now finds itself battling a vortex of negative forces at home while dealing with the unpleasant repercussions of its airline investment strategy abroad. Actually, unpleasant seems too soft an adjective. Better said, Etihad’s investment—in Air Berlin and Alitalia, specifically—are blowing up in its face.

In Germany, Air Berlin continues to hemorrhage money despite Etihad’s repeated capital injections. So it’s now splitting into three parts, one of them a leisure-oriented joint venture with its rival TUIfly, to be based not in Germany but Austria. Why? Details about the project haven’t been finalized, but Etihad is apparently managing around foreign investment laws. Unable to provide more capital to Air Berlin itself without breaching foreign ownership caps, it will provide backing for the new TUI JV by investing in Air Berlin’s Austrian subsidiary Niki. TUI’s board approved the project last week and will reportedly own 25% of the new airline, with Etihad also holding 25% and Niki itself the other 50%. Temporarily called Blue Sky and based in Vienna, the new carrier will fly about 60 planes and give Etihad additional exposure to the unforgiving European shorthaul market. Since Etihad bought into…

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