MIAMI — Middle Eastern carrier Etihad Airways confirmed that it will purchase a 49% stake in struggling Italian flag carrier Alitalia on Wednesday. The deal, which could reportedly see Etihad invest more than $1.7 billion over four years, will shore up Alitalia’s finances and prevent a shutdown that could have taken place as early as this summer.

Etihad issued the following statement to the media on the Alitalia deal:

Alitalia and Etihad Airways today confirmed that they have agreed the principal terms and conditions of a proposed transaction whereby Etihad Airways will acquire a 49 per cent equity stake in Alitalia.

The airlines will now move to finalise the transactional documents, that will include the agreed upon conditions, as soon as possible. The conclusion of the investment is subject to final regulatory approvals.

Comments from Italian Infrastructure Minister Maurizio Lupi indicated that Etihad was looking to invest €560 million ($763.9 million) to purchase the stake, and had pledged to invest an additional €690 million ($941.2 million) over the next four years to revitalize Alitalia.

If approved, the tie-up would spare Alitalia from what likely would have been a certain shutdown by the end of the summer. Alitalia has been teetering on the brink this past December after years of unprofitability, but was saved from the going belly up by a €300 million ($409.2 million) cash injection from shareholders, and €200 million ($272.8 million) in credit lines from bankers.

Since its foundation in 1946, Alitalia has only reported one year of net profit (1998). And between 1999 and 2013, the carrier lost more than €4.3 billion ($5.9 billion) despite more than €2 billion ($2.7 billion) in state aid, and more than €6 billion ($8.2 billion) in total investment.

Alitalia has suffered especially in recent years due to Italian economic weakness. Despite its merger with (formerly) low cost carrier Air One, Alitalia has struggled to convert the large volume of Italian leisure and tourism traffic into a profitable customer base.

Part of the problem lies in Alitalia’s long haul network. Long haul flights require high yielding business customers to achieve profitability, and Italy’s high yield business customers are highly concentrated in Milan. But Alitalia cannot effectively have a hub at Milan Malpensa because the profitable high yield short haul traffic all flies through Linate, leaving Alitalia to suffer at Rome’s Fiumicino Airport.

Etihad will add Alitalia to its growing “equity alliance” of airlines, consisting of Etihad and the carriers in which Etihad holds an equity stake. This partnership is centered on Etihad’s global hub at Abu Dhabi, and is driven by long haul service from such partners flowing into Abu Dhabi and generating massive connectivity. Every airline that Etihad partners with restructures its long haul international operations by replacing all flights in the direction of Abu Dhabi with flights to Abu Dhabi. These flights are not aimed at profitability or O&D markets so much as they are focused on boosting traffic at Abu Dhabi.

In Alitalia’s case, this will likely result in the cancellation of flights to Tokyo Narita and Osaka-Kansai in favor of massive lift from Rome, Milan, and Venice to Abu Dhabi using widebody Airbus A330s and Boeing 777s. Alitalia has 22 widebody aircraft (12 A330-200s and 10 777-200ERs), and as seen in the case of Indian full service carrier Jet Airways, several of these aircraft will likely be re-purposed to feed Abu Dhabi.

Thus the effects of an Etihad investment on an airline can be uneven. Etihad certainly walks away with its strategic objectives met, and the state owned carrier has access to plenty of funds to achieve its goals. But for the carrier receiving investment, the results are varied. The financial performance of flights to Abu Dhabi is superior to those it replaced and finances do tend to recover under Etihad’s stewardship. The best case scenario is Aer Lingus, who is consistently profitable and has even grown its long haul traffic to the United States with new services from Dublin to San Francisco and Toronto and a new 757 operation at Shannon. But a more realistic scenario would be for an improvement in financial performance while remaining unprofitable. And the network havoc likely to be wrought by Etihad arguably will destroy Alitalia’s viability as a standalone airline moving forward.