Etihad Airways is to buy five pairs of Alitalia slots at Heathrow for €60 million and lease them back as part of multimillion-euro rescue plan that will see Etihad take a 49% stake in the Italian carrier.

Confirming a combined investment of €1,758 million to turn around loss-making Alitalia, Etihad president and chief executive James Hogan stressed the London slots would continue to be used by the Italian carrier.

Etihad used a similar method of buying and leasing back slots at Heathrow when it took a stake in Indian carrier Jet Airways.

Hogan stressed that Etihad would not use the valuable Heathrow slots itself.

Etihad’s investment of €560 million will be provided through a combination of equity injections, asset purchases and other financing facilities and funding arrangements to re-structure the Alitalia balance sheet.

This will be complemented by equity investment of €300 million by existing Alitalia shareholders and an additional €598 million in financial restructuring of debt provided by financial institutions and banks.

A total of €300 million in new loan facilities have also been extended by Italian financial institutions.

Etihad Airways will take a 49% shareholding in Alitalia for €387.5 million.

The carrier’s total investment includes €112.5 million to acquire a 75% interest in Alitalia Loyalty Spa, which operates the airline’s MilleMiglia frequent flier programme, and the purchase of the Heathrow slots valued at €60 million.

The deal faces scrutiny by the European Commission and is likely to provoke opposition from rival carriers concerned about Etihad’s expanding influence over foreign carriers.

With Alitalia, the Gulf carrier will have shareholdings in nine airlines, including Air Berlin, Aer Lingus, Air Serbia, Jet Airways and Virgin Australia, in addition to codeshare pacts with Air France/KLM and Delta Air Lines.

A three-year business plan will see Alitalia drop loss-making short-haul routes and build more long-haul services from both Rome Fiumicino and Milan Malpensa airports.

The aim is to reduce short haul flying by 13% and increase long haul by 32%.

Alitalia will increase frequency between Rome Fiumicino and Abu Dhabi from five flights a week to a daily service and launch a new daily service to Abu Dhabi from Milan this winter.

This will complement Etihad’s existing daily services and open up new connecting opportunities via Etihad’s Abu Dhabi hub.

Alitalia will introduce connections between other Italian cities and Abu Dhabi from next summer, with plans for direct flights from Venice, Catania and Bologna.

Rome Fiumicino will emerge as an enlarged intercontinental hub, with up to five new routes over the next four years, while long-haul flights from Milan Malpensa will more than double to 25 a week by 2018.

Alitalia’s wide-body fleet is planned to grow by a third, while its narrow-body fleet will be “right-sized” to meet the requirements of the new network.

The carriers claim agreement on restructuring has been reached with all Alitalia unions although the level of redundancies remains unclear.

Hogan said there would be job opportunities at Etihad and the airline would go out of its way to be “fair” with staff.

He admitted that the restructuring would not be easy and unit costs would have to be cut alongside other changes, including a move to a common booking system.

But 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.”

He described Alitalia as having a “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,” he said.

“The goal is for sustainable profitability from 2017.”

Alitalia chief executive Gabriele Del Torchio said: “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.”