Etihad Airways signed an agreement yesterday to sell 38 aircraft. Ownership will transfer to global investment firm KKR and commercial aviation finance business Altavair AirFinance. The deal is worth USD$1 billion.

Thirty-eight aircraft are being sold

Included in the sale are 16 Boeing 777-300ERS, 16 A330-200s and six A330-300s. Etihad will lease back the Boeing 777-300ERs while the A330s will go to other airlines over the next 22 months.

In a statement, Altavair's CEO, Steve Rimmer said;

 “We are delighted to extend our partnership with Etihad and play a major role in the repositioning of their fleet. Altavair’s extensive wide-body experience and expertise combined with KKR’s capital, relationships and capabilities made this transaction possible.

"We appreciate the trust that Etihad has placed in us and look forward to a long and mutually beneficial relationship.”

Etihad trying to fly out of its financial woes

The Abu Dhabi based airline has run into financial troubles recently after a giddy expansion ride earlier this decade. In 2013, Etihad had USD$67 billion worth of aircraft on order.

But amongst other things, Etihad's ill-fated decision to buy stakes in loss-making airlines saw it begin to hemorrhage cash. Additionally, the role of Middle Eastern airports like Abu Dhabi as super-connector hubs is under threat as new ultra-long-range aircraft come into production.

Since 2017, Etihad has a five-year transformation program underway. The airline reports that its core operating performance has improved since then. It lost USD$1.28 billion in 2018, a small improvement on the USD$1.52 billion it lost in 2017.

Etihad attributes this improvement to market share growth, capacity disciple, and network and fleet optimization.

Key to this strategy is trimming outstanding orders and downsizing Etihad's existing fleet.

Six months ago, Etihad canceled orders for 40 A350-900 aircraft and two A350-1000s. Earlier in 2019, the airline canceled an order for 10 A320neos destined for Air Serbia. Lest you think Airbus is feeling all the pain, Etihad also substantially trimmed its order for Boeing's 777-9.

Etihad's glory days are long gone

Gone are the glory days of Etihad's ambition to be a global mega carrier. It now seeks to style itself as a more boutique airline, which as One Mile At A Time noted today, is just a swish term for small.

But as that report noted, Etihad's deal with KKR and Altavair AirFinance is neither unusual or indicative of further problems at the airline.

Etihad has been retiring its A330 fleet and this deal takes them off their hands. The 777-300ER is a standard sale and leaseback agreement. The practice is not unusual in the airline industry.

A good deal for Etihad

The airline is pleased with the deal. Their balance sheet is getting a handy USD$1 billion top-up and the handover the aircraft marks a significant step in Etihad's transformation program.

Etihad's Group Chief Executive Officer, Tony Douglas, said yesterday;

“We’ve made great strides in optimising our fleet structure over the past year, and this investment from KKR and Altavair AirFinance will allow us to take another step forward in this area.

"This deal will ensure we stand by our strategic and financial sustainability targets by replacing aircraft with the most technologically-advanced and fuel-efficient fleet types.

"The structure of this transaction also provides us with significant flexibility, meaning we are well placed to respond to future growth requirements.”

As 2020 rolls out, Etihad is well into the second half of its transformation program. The release of the 2019 financial statements will indicate whether the airline is heading back into the black. What's pretty clear is that as Etihad re-positions, we could see more aircraft sales and more trimming of the airline's sails as it transitions into profit.