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Exclusive: Etihad to win EU approval for 49 percent buy of Alitalia

Alitalia's logo is seen at the top of the headquarters at Fiumicino international airport in Rome October 14, 2013. REUTERS/Max Rossi

By Foo Yun Chee

BRUSSELS (Reuters) - Abu Dhabi's Etihad Airways is set to win conditional EU antitrust approval for its purchase of 49 percent of Alitalia, two people familiar with the matter said on Wednesday, sharpening its rivalry with European carriers on their home turf.

State-owned Etihad's stake buy is part of a 1.76-billion-euro ($2.19 billion) rescue plan for loss-making Alitalia.

The tie-up will provide funds for Alitalia to invest in more profitable long-haul routes and make it less dependant on domestic and regional services, where it faces fierce competition from low-cost airlines and high-speed trains.

Etihad in turn will reinforce its presence in Europe's fourth-largest travel market with 25 million passengers. It already has minority stakes in Air Berlin, Ireland's Aer Lingus, Virgin Australia and other airlines.

"The European Commission is expected to approve the deal," said one of the sources who declined to be named because the EU decision is not yet official.

The sources said the EU antitrust authority had accepted the airlines' offer to give up some airport slots on the Rome-Belgrade route to facilitate rivals and allay the regulator's concerns that the deal may reduce competition.

"The concession is in line with previous airline deals," one of the people said. Antitrust experts said this was quite modest compared with previous deals where some airlines had to cede slots for two or more routes.

"If the result is Phase I clearance with remedies, which of course remains to be seen, it would mean that the parties engaged in open and sincere discussions with the Commission early on in the process and were quick to address any concerns the regulator raised during the review period," said Andreas Kafetzopoulos at law firm Dechert.

The Commission's transport unit, which is checking whether the deal complies with the bloc's rules which mandate that EU authorities or companies own more than 50 percent of an airline and effectively control it, is likely to approve it, said a third source.

"This is at the moment the prevailing line within the Commission," the person said, adding that the decision would be finalised by the end of the year.

The unit is also examining Etihad's 29 percent stake in Air Berlin, Germany's second-largest carrier, Delta Air Lines' holding in Virgin Atlantic, Chinese HNCA's Cargolux stake and Korean Air's holding in Czech Airlines.

Commission spokesman Ricardo Cardoso declined to comment. Etihad and Alitalia were not immediately available for comment. The EU executive is scheduled to decide on the deal by Nov. 17.

Existing shareholders, including state-owned Poste Italiane, are also taking part in Alitalia's rescue scheme.

(Additional reporting by Alberto Sisto in Rom, Stanley Carvalho in Abu Dhabi, and Francesco Guarascio in Brussels; editing by Adrian Croft, David Clarke and David Evans)