Etihad Airways Plans IPO, First For A Major Gulf Carrier

Etihad Airways sure has come a long way, as the carrier’s owners are now considering taking the airline public. This would be the first time we see something like this happen at one of the “big three” Gulf carriers, so it could have major implications (though I should note that there have been discussion in the past about other Gulf carriers going public, without it materializing)…

Major Gulf carriers are currently all government owned

For some background, virtually all of the major Gulf carriers are owned by their respective governments, either directly, or through some government owned investment fund. This is logical, when you consider that historically, Gulf carriers haven’t just been purely profit-driven businesses.

Rather, they’ve historically been about putting their respective hubs on the map, and facilitating trade, tourism, and more. For example, one wonders where Dubai would be without Emirates.

Going back many years, some Gulf carriers were happy lighting billions of dollars on fire, as part of a larger political and economic strategy for the country. That was always controversial globally, especially in the context of airlines competing freely. It’s why the “big three” US carriers ran a smear campaign against the Gulf carriers many years back, though in the meantime they have major partnerships in the region.

We have to give Gulf carriers credit, as they’ve exercised a lot more fiscal discipline in recent years, and at least post-pandemic, the “big three” Gulf carriers are consistently reporting significant profits.

Now, in fairness, Gulf carriers do have some economic advantages that airlines in other regions don’t have. They have access to cheap money, and since the governments typically own the airlines, the airports, etc., they don’t have costs that are as high as what you’d find in other regions.

Etihad Airways expected to be taken public

In early 2024, there was significant talk of the possibility of Abu Dhabi-based Etihad Airways going public. The company’s CEO, Antonaldo Neves, even confirmed this in interviews. Now, of course he framed it a little differently, suggesting that the management team was trying to be ready in case this is what the company’s owners desire.

While nothing materialized with that in 2024, there’s now an interesting update. Reuters is reporting that Etihad is gearing up to go public, with the company sounding out investors next week, in hopes of going public before the end of the quarter. The plan is reportedly to initially sell a roughly 20% stake in the company.

Etihad is currently owned by The Abu Dhabi Developmental Holding Company (ADQ), which is a sovereign wealth fund. If this were to happen, it would be the first privatization of one of the “big three” Gulf carriers, and the first Gulf carrier to go public since Kuwait’s Jazeera Airways, which went public in 2008. ADQ has already brought several companies that it owns public.

I think the logic for Etihad going public is pretty obvious — this is intended to boost the stock market in the UAE, attract more international investment, and diversify the economy away from oil.

However, arguably an airline like Etihad going public also has some downsides. Etihad’s management team would be even more focused on exclusively maximizing shareholder value, and the government would have less control over the carrier’s strategy. Admittedly this might not be an issue if only a 20% stake is sold initially, but in the long run, it could have bigger implications.

We’ve seen Abu Dhabi have serious shifts with regards to its strategic vision for Etihad — in 2014, Etihad wanted to compete directly with Emirates, grow massively, and acquire stakes in all kinds of airlines. In 2019, after losing billions of dollars, the airline did a 180, and tried to shrink into profitability. This was all part of the government’s vision, which obviously evolved over time. The airline increasingly going public would potentially give the government less control over what the future holds for the airline.

Then again, it’s not like Etihad even has that much potential to change its business model. It has a hub in Abu Dhabi, and the airline has its “Journey 2030” strategy for sustainable growth. Etihad’s current management team has been doing a phenomenal job with the airline, and I don’t think that will change.

During the pandemic, we saw airlines around the globe struggling. Even for publicly traded airlines, the reality is often that profits are privatized, while losses are socialized. I imagine this wouldn’t be any different at Etihad, if the airline found itself in tough times.

I’m curious to see how this all plays out, because there could be a domino effect from this.

Bottom line

Etihad Airways’ owners are signaling that the company may be going public, and this could happen before the end of the first quarter of 2025. While there had been discussions about this at other Gulf carriers in the past, it didn’t ultimately go anywhere.

Etihad is well positioned financially for going public, at least compared to any other point in the company’s history. Given the important strategic role that airlines play in the Gulf region, I’m very curious how this all plays out.

What do you make of the prospects of Etihad (or another Gulf carrier) going public?