Etihad Airways and Alitalia today signed a deal that will see the Gulf carrier take a 49 per cent stake in the struggling Italian airline.
Etihad has agreed to invest €560 million (£448 million) to save Alitalia from bankruptcy. It will now restructure the airline and return it to profitability.
The deal was signed in Rome by Etihad chief executive James Hogan and his Alitalia counterpart Gabriele Del Torchio.
Left to right: Etihad Airways CFO James Rigney, Alitalia chairman Roberto Colaninno, Etihad's president and CEO James Hogan, and Alitalia CEO Gabriele Del Torchio
As part of its investment, Etihad has agreed to buy five pairs of slots at London Heathrow for €60 million (£48 million). These will be "leased back to Alitalia on an arm's length basis".
The plan is to grow Alitalia's long-haul network by flying from both Rome Fiumicino and Milan Malpensa, including flights to new destinations, increased frequencies and an enhanced network to Etihad's Abu Dhabi hub.
From this winter season, Alitalia will increase frequency between Rome Fiumicino and Abu Dhabi from five-times weekly to a daily service. A new daily service between Milan Malpensa and Abu Dhabi will also be launched.
Long-haul flights from Milan Malpensa will more than double to 25 weekly by 2018 as Alitalia's widebody fleet is set to grow by a third.
Next summer, Alitalia will also begin to implement connections between other Italian cities and Abu Dhabi, while Rome Fiumicino will emerge as a larger European intercontinental hub, with up to five new routes over the next four years.
Etihad has also acquired a 75 per cent interest in Alitalia Loyalty Spa, which operates the airline's frequent flyer programme MilleMiglia.
MilleMiglia members will be able to "earn and burn on Etihad Airways and partner airlines, with future integration of the programmes planned".
Etihad's Hogan said: "For Etihad Airways, this is a strategic, long-term commercial investment. On completion, we are committed, with the other shareholders, to build a reinvigorated Alitalia as a competitive, sustainable and profitable business that can operate successfully in the global air travel market.
"We believe in Alitalia. It is great brand with enormous potential. With the right level of capitalisation and a strong, strategic business plan, we have confidence the airline can be turned around and repositioned as a premium global airline once again.
"Alitalia is the perfect ambassador for Italy and all that it represents. As we revitalise the brand, the airline will increasingly embody all that we recognise as quintessentially Italian – the history, culture, food and fashion. It must be an airline of which Italians can be proud.
"However, ultimately it has to work as a business and the goal is for sustainable profitability from 2017."
He added: "There is a long road ahead, first to complete the transaction and then to deliver this new vision. Today marks a critical step on that journey and we are proud to take our place as a strategic investor in the new Alitalia."
Alitalia CEO Del Torchio said: "This is an excellent outcome for Alitalia. We have had to take some tough decisions in a very robust negotiation process but we have achieved the consensus we require to create the right shape and size for Alitalia in the future.
"This investment will provide financial stability and enable us to position Alitalia, and the travel and tourism industry in Italy, for long-term growth."
Etihad Airways has already taken a share of Air Berlin, Aer Lingus and Virgin Australia.