Etihad + Alitalia = sant

Etihad-Alitalia deal in the details

STORY HIGHLIGHTS

• Abu Dhabi carrier Etihad agreed to a 49% stake in Italian loss-making airline Alitalia
• It is the biggest foreign stake of a European carrier, taking it to the limit set by EU
• Italian officials have indicated that Alitalia is losing about $1.6 million a day

Editor's note: John Defterios is CNN's Emerging Markets Editor and anchor of Global Exchange, CNN's business show focused on the emerging and BRIC markets. Follow John on Twitter.

(CNN) -- Fast growing Abu Dhabi carrier Etihad is spreading its wings again by agreeing to a 49% stake in Italian loss-making airline Alitalia.

The two parties put out a brief, joint statement which said they agreed to "principal terms," although the financial details were not disclosed.

When the Alitalia board gave a green light to the offer on June 15, Italy's Transport Minister Maurizio Lupi said that Etihad would make an upfront investment of $760 million and would commit to another $700 million by 2018. There are reports this could be even higher.

John Defterios

This represents the biggest foreign stake of a European carrier, taking it to the 49% limit set by European Commission. Etihad becomes the biggest shareholder.

Etihad is expected to cut up to 2,200 jobs as part of the agreement. The company also want to ensure Etihad will not carry an unfair burden of Alitalia's $1.3 billion in debt.

Alitalia's unionized staff have resisted deep cuts over the past decade even though losses continued to mount for the flag carrier.

The Italian government along with two major banks, Intesa Saopaolo and UniCredit, stepped in with a $680 million recapitalization in 2013.

This reduced the stake of Air France-KLM, which had no desire to pump more money into the operation, to 7%.

Italian officials have indicated that Alitalia is losing about $1.6 million a day, well over a half billion dollars a year.

In April, Italy's Finance Minister Pier Carlo Padoan told me it was important for the government of Prime Minister Matteo Renzi to consummate this transaction as a signal the country is open for business.

This deal represents the latest move by the Abu Dhabi carrier and its CEO James Hogan to build its network to more than 400 destinations.

It has taken positions in seven carriers including Air Berlin, Air Serbia and Aer Lingus in Europe.

It has also looked East, with stakes in stakes in Jet Airways of India and Virgin Australia.

Etihad would not comment beyond its joint-statement, but Hogan spelled out his strategy during our interview at the Dubai Air Show last November.

"Having that network offering is key. But why do we all have to duplicate our overhead?" Hogan said.

He pointed to the need for "centers of excellence" with the "lowest unit cost, whether it's reservations, whether it's part of training. Cost reduction is as important as exceeding customer expectation."

The challenge for Hogan is proving his team can turn around loss-makers like Air Berlin and Alitalia, while also picking up passengers for Etihad.