Emirates to purchase Etihad to create the world's largest airline - report

Dubai's flagship airline Emirates may be about to take over its neighbouring airline, Etihad according to Bloomberg news sources.

Both airlines have denied the report, saying there was no truth to rumours of a merger.

Bloomberg quotes "four people familiar with the matter" who claim Etihad would hold onto the aircraft maintenance part of its business as Emirates took over everything else.

Until now, the two UAE-based airlines have operated on similar models, creating hubs in the Middle-East for flights throughout Asia and Europe.

A senior banker monitoring business in the Gulf said the idea of an Emirates-Etihad merger had been circulating "on and off for at least five years".

Both airlines grew rapidly earlier this decade, but have faced financial pressures in the past two years due to increased competition and a regional economic slowdown due to low oil prices.

This year, the two carriers signed an agreement to cooperate in some areas, including allowing Etihad pilots to join Emirates on a temporary basis for two years.

A source close to Etihad told Reuters this week that while a merger could conceivably happen in the future, Abu Dhabi would not quickly give up control of its airline and brand, especially after it had invested billions of dollars in its international airport and other aviation infrastructure.

Emirates is far larger than Etihad. Its fleet as of March 31 consisted of 268 Airbus A380 and Boeing 777 jets - roughly three times the size of Etihad's, in terms of the number of aeroplanes.

Dubai and Abu Dhabi are both spending heavily on airport facilities. Dubai is developing a new airport that will one day be able to handle around 200 million passengers a year and replace Dubai International, currently the world's busiest airport for international passenger traffic, as Emirates' hub.

Meanwhile, a new terminal is scheduled to open next year at Abu Dhabi International Airport, where Etihad is based.