Etihad’s succession planning for when CEO James Hogan exits

Etihad Aviation CEO James Hogan says the Abu Dhabi-based airline has started planning for life after his departure.

James Hogan says a recent restructure was meant to create succession planning options.

Etihad Aviation Group chief executive James Hogan has revealed that the Abu Dhabi-based airline has started planning for life after his eventual departure from the top job following almost a decade-and-a-half working with airlines in the Gulf region.

While the Melbourne-born and bred Mr Hogan has no plans to leave Etihad any time soon, he revealed that the recent global restructure that saw the promotion of several key executives in the airline group was partly motivated by its desire to give its major shareholder, the Abu Dhabi government, succession planning options.

“From a succession point of view, it is giving good executives within Etihad and outside Etihad the opportunity to develop and run their own businesses. It gives the shareholder options,” he told The Australian in Rome at a function for Italy's national carrier Alitalia, in which Etihad holds a 49 per cent stake.

Under the restructure, Peter Baumgartner, who has been with the company since 2005 and was formerly its chief operating officer, took over as chief executive of Etihad Airways.

Mr Baumgartner was in Rome last week for the release of a €20 million advertising campaign and new staff uniforms for Alitalia. Last December Australian Cramer Ball, the former head of Etihad affiliate's Jet Airways and Air Seychelles, was appointed the new chief executive of Alitalia. Mr Hogan is the Italian carrier's deputy chairman.

Eithad also holds stakes in Virgin Australia (25.1 per cent), German airline AirBerlin (29.2), Air Serbia (49), and Swiss regional carrier Darwin Airline (33.3) which has been renamed Etihad Regional. Last year Etihad sold a 5 per cent stake in Irish flag carrier Aer Lingus.

Each with the exception of Air Berlin have reported significant financial turnarounds in the past year but are still a way off making strong profits.

Etihad’s rivals have questioned Mr Hogan’s moves to invest in a group of what they have called ailing airlines he does not control, more than a decade after a similar strategy led to the collapse of Swissair. The strategy is partly a response to global rules that generally limit full airline mergers to national and regional deals.

They also argue the strategy has been bankrolled by the deep pockets of the Abu Dhabi government.

US airlines have alleged that all the Gulf carriers — Etihad, Emirates and Qatar Airways — have been the beneficiaries of more than $US42 billion in government subsidies which have helped them make investments and bolstered their financial performance. The Gulf airlines have denied any improprieties in the support.

Under the Etihad restructure Mr Hogan was named chief executive of Etihad Aviation Group, an umbrella company created to house the airline’s various subsidiaries including Etihad Airways Engin­eering, Etihad Global Cargo Management Company, the Global Loyalty Company, Hala Abu Dhabi and Etihad Airport Services.

It came after the airline in March restructured its board following a decree by Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi. Mr Hogan is a big Australian rules football fan and asked if the restructure meant he was starting his last quarter at Etihad after a decade as CEO, he replied with a smile: “At the end of the day, if we put it in footy terminology, I am here at the coaching panel’s behest. We are now a different business to the group I started 10 years ago. It’s gone from revenues of $300 million to $25 billion (including those of its partners). When you consider what we have created, my role is now probably much more strategic. Making sure that across the width we are achieving our top line, and from a depth where we may see cracks or issues we are able to step in.

“I will still be involved with the strategy and the group functions. Finance reports to me, HR reports to me, strategy and planning reports to me. I am still the accountable officer for the airline with the civil aviation authorities. But this is how we have evolved. (The restructure) gives the shareholder a succession opportunity. And as a business it means we can put more focus on the business units.” Mr Hogan spent four years as CEO of Gulf Air before he took the top job at Etihad.

While he declined to comment on life after Etihad, when he does eventually retire he is unlikely to return to Australia and is expected to be based in London where he may take on a range of non-executive board positions.

Mr Hogan declined to comment on the capital review of Virgin Australia, which is taking place at the same time as Air New Zealand has put its 25.9 per cent stake in the Australian carrier on the market.

China Southern, Hainan Airlines and Cathay Pacific are said to be interested in the sales process for all or part of the stake. Virgin’s other big shareholders are Singapore Airlines and Richard Branson’s Virgin Group.

Etihad is said to be closely monitoring the sale and capital review processes despite having ruled out a takeover of Virgin and is likely to support the entry of a Chinese shareholder to the register. A Virgin Australia board subcommittee, which includes Richard Branson's former right hand man David Baxby is working with UBS on the capital structure at arms length from the airline's management led by chief executive John Borghetti.

Under Etihad’s restructure former Air France-KLM executive Bruno Matheu, who has been chief operating officer of the equity partners division of Etihad since 2014, became the division’s CEO.

“Bruno is working with the various partners and we have a different relationship with each of them. His job is to make sure he supports on the synergies and generating revenue. And as an investor making sure our investor requirements are met. He is involved as a board member,” Mr Hogan said.

Mr Matheu was appointed to the Virgin board last year when Mr Hogan stepped down as a director.

Mr Hogan said Mr Matheu’s new Etihad appointment would see an increased focus on generating cost and revenue synergies from the airline’s equity partnerships. “We have done major transformational deals with IBM, SAP, Sabre and Honeywell across the group. Engineering is a considerable business and that can go beyond Abu Dhabi into Europe and other parts. Alitalia has a great engineering infrastructure that was mothballed. So this gives us the opportunity to have a look at that,” he said.

“Our long-haul airlines are now overhauled in Abu Dhabi. And we are currently looking at building a short haul maintenance facility in Serbia because the unit costs are low, the technical skills are strong.”

Last month Etihad ­announced its strongest annual financial result in its 13-year history, an annual net profit of $US103 million struck on total revenues of $US9.02 billion after again winning Air Transport World’s airline of the year award in February.