Etihad terminates Belgrade service, Air Serbia partnership on thin ice
Etihad Airways has indefinitely terminated flights between Abu Dhabi and Belgrade and will seemingly end its codeshare partnership with Air Serbia next year, indicating its part-ownership of the company will also come to a close. Etihad restored services between Abu Dhabi and Belgrade in July but suspended them on October 14 for a six-week period. It later postponed the service resumption until January 2021 but has now completely discontinued sales and no longer offers options to the Serbian capital via points in Europe from where it codeshares on Air Serbia flights. Etihad performed well on its service to Belgrade, which was launched in 2013, benefiting from an extensive codeshare partnership with the Serbian carrier. They were maintained on a daily basis up until the coronavirus pandemic, while it ran up to twelve weekly rotations between the two cities over the past two summers. In 2019, the airline operated 462 one-way flights between Abu Dhabi and Belgrade, offering 62.832 seats each way.
Currently, Etihad Airways has its designator code and flight numbers on Air Serbia’s services to and from Amsterdam, Barcelona, Berlin, Bucharest, Cairo, Copenhagen, Dusseldorf, Frankfurt, Helsinki, Kiev, Ljubljana, London, Madrid, Milan, New York, Podgorica, Prague, Rome, Moscow, Skopje, Sofia, Stockholm, Stuttgart, Tirana, Tivat, Venice and Vienna. Some of these routes are temporarily suspended due to Covid-19. Etihad declined to comment on the latest developments.
The Serbian government has indicated Etihad may exit from its part-ownership of Air Serbia. In June, the state launched talks with the Emirati national carrier over its future role in the airline. The Serbian government noted at the time it would request for Etihad to cover part of the losses incurred throughout the Covid crisis, otherwise it would look to take a greater share in the airline. Yesterday, the Serbian President, Aleksandar Vučić, noted, “As far as Air Serbia is concerned, not only will it continue operating, we will also have enough strength and knowledge if we have to recapitalise the company and take over a larger ownership stake. This is not a problem at all. Air Serbia will be a successful airline and the pride of Serbia everywhere in the world”. The Serbian government owns a 51% stake in the company, while Etihad holds 49%.
In October, the Serbian government adopted a decree which enables it to recapitalise Air Serbia. Through recapitalisation, the state can increase its share in the company, which it can later sell back to the said company at any time or another entity. Mr Vučić hinted over the summer that if Etihad were to fully or partially exit the airline, another strategic partner could be brought in. “We might introduce some other strategic partners, but we will continue to hold a majority stake. Air Serbia will be our flag carrier and it will be stronger than it is today”, he said.
The strategic partnership agreement between Etihad Airways and the Serbian government, unveiled in August 2013, saw the Emirati airline make available a forty million US dollar loan facility to Air Serbia which was converted into equity on January 1, 2014 for a period of five years. This was matched by an equal funding injection by the Serbian government. The two sides each provided further funding through shareholder loans and other funding mechanisms to meet working capital requirements and support network development. The five-year deal was later extended until further notice, however, Etihad’s involvement in Air Serbia has been significantly reduced, with the state providing subsidies and funds for the airline over the past few years. Etihad registered an 870 million US dollar loss in 2019 and its equity investments in carriers around the world have unravelled in recent years.
Under the transaction agreement between Etihad and the Serbian government, the Emirati carrier’s part ownership of Air Serbia can be terminated at any time. The agreement states Etihad can pull out of the deal in case of a material adverse event. It further notes, “This agreement shall cease to have any effect from the date of termination and no party shall have any claim against any other party”.
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