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Abu Dhabi’s Etihad Airways continues growth spurt

The deal marks the fourth publicly disclosed stake Etihad has taken in another carrier since December. The purchases are a way for Etihad to gain an edge over larger Gulf rivals Emirates and Qatar Airways.

"We're building a strong business model. And part of that business model is partnerships,'' Etihad CEO James Hogan told The Associated Press. "We do have two large competitors on our doorstep. And we will never match their aircraft order book.''

Etihad spent $35.6 million on the 3.96 per cent stake, and aims to acquire as much as 10 per cent of the Australian carrier, Hogan said. He declined to say when Etihad first began amassing the stake, which is bought on the open market.

Virgin Australia confirmed the deal in a brief statement to the Australian Securities Exchange.

The companies have an existing partnership signed in 2010 designed to boost commercial ties. That deal allowed the carriers to link up their frequent flyer programs and grant airport lounge access to each other's passengers.

Etihad said it believes the equity stake in Virgin Australia will strengthen their relationship and "enrich the commercial benefits which the alliance already provides.''

Virgin Australia launched its first direct Middle East flights from Sydney to Abu Dhabi last year. It now offers three flights a week to the Emirati capital.

Etihad runs a total of 21 flights a week to the Australian cities of Sydney, Melbourne and Brisbane.

It last week announced plans to lease a Boeing 777-300ER plane from Virgin Australia to use on flights between its Abu Dhabi hub and Kuala Lumpur, Malaysia.

Etihad made headlines in December when it bought nearly 30 per cent of Germany's troubled No. 2 airline Air Berlin PLC. Weeks later, it acquired 40 per cent of Air Seychelles, the tiny island country's national carrier.

It has since amassed a stake of nearly 3 per cent in Aer Lingus. Etihad has said it is interested in exploring a closer working relationship with the Irish carrier.

Hogan suggested Etihad may still pursue additional deals.

"Where we see opportunities to improve our business, stretch our networks and take out costs … we'll consider those accordingly,'' he said.

Etihad is fully owned by the government of Abu Dhabi, the oil-rich capital of the United Arab Emirates. It posted its first annual profit last year, booking earnings of $14 million.

It is funding its acquisitions entirely through internally generated funds, Hogan said.

Etihad began operations in 2003. It is younger and smaller than Emirates, the Middle East's biggest carrier, based in nearby Dubai.

The two carriers and another state-backed Gulf airline, Qatar Airways, are increasingly challenging established European, Asian and Australian carriers by routing lucrative long-haul flights through the Gulf region.

Virgin Australia, part of Richard Branson's Virgin Group, started business as Virgin Blue in 2000. It posted a loss of Australian dollars 67.8 million ($66.2 million) in its last fiscal year, which ended June 30, 2011.

It is Australia's second biggest airline after flag carrier Qantas.