Etihad Airways has unveiled plans to acquire 49 per cent of Jat Airways, which will be renamed Air Serbia.
The Abu Dhabi-based carrier has also been awarded a five-year management contract for the Serbian national airline.
The deal is an important step for Etihad as it will see the airline get a foothold in Europe, using Belgrade as a possible springboard for expanding its network across the continent.
Air Serbia will launch a four-weekly service from Belgrade to Abu Dhabi in October. This is planned to become a daily route.
Under the terms of the agreement, Etihad will provide a $40 million loan facility to Jat, which will be converted into equity on January 1, 2014.
This amount will be matched by an equal funding injection from the Serbian government.
Both parties have also promised to provide $60 million in further funding for Air Serbia.
Etihad CEO James Hogan said: "We are delighted to welcome Air Serbia to our equity alliance and look forward to working constructively with them and their stakeholders to build a sustainable, competitive, and profitable airline.
"We will have tough decisions to make but the financial investment by Etihad Airways and the government of Serbia, together with the positive impact of our joint management expertise and experience, will help ensure this airline, with its proud history, now has an even brighter future."
The rebranding/renaming of Jat Airways to Air Serbia will see the tail fins feature the Serbian coat of arms and the country's state colours on both sides.
The new livery was designed by a team in Serbia and the UAE and provides a new look and feel for the national airline.
Among other planned developments will be an enhanced flight network, codesharing with Etihad Airways and Air Berlin (see online news, July 17), adding to Air Serbia's current network of 33 cities another 12 destinations in Africa, Europe and the Middle East.
The new destinations are Abu Dhabi and Banja Luka, Beirut, Bucharest, Budapest, Cairo, Kiev, Ljubljana, Prague, Sofia, Varna and Warsaw.