James Hogan, Etihad's chief executive.

James Hogan, Etihad's chief executive. Photo: Reuters

VIRGIN AUSTRALIA'S alliance partner, Etihad, says it is ''well positioned'' to withstand a challenge from the combined might of Qantas and Emirates on routes between Europe and Australia.

The Etihad chief, James Hogan, said last night it had formed a ''pretty strong coalition'' with other airlines to compete against the new alliance partners. The Abu Dhabi-based airline yesterday announced a code-share deal with Air France-KLM, which will include destinations to Australia.

Etihad has pursued a strategy over the last two years of forming alliances and taking equity stakes in airlines including Virgin, Air Berlin and Air Seychelles.

Although it might buy stakes in a further ''one or two'' airlines, Mr Hogan emphasised that it would not be taking an equity position in Air France-KLM.

''We are well positioned for Australia. This block we have in Europe with Air France-KLM and Air Berlin is pretty powerful,'' he said.

Etihad has built a 10 per cent stake in Virgin and is expected to seek to raise it to 19.99 per cent. But the Middle East airline will have to reapply to the Foreign Investment Review Board if it wants to raise its stake by another 5 per cent.

Mr Hogan said it was not about to enter talks with FIRB about increasing its stake ''at this point in time''. ''We would like to grow our share but we are in no rush.''

The ability for Etihad to swoop on Virgin was made possible this year when a shake-up of the Australian airline's ownership structure allowed it to sidestep a 49 per cent foreign-ownership cap.

The combined ownership of Virgin's three biggest foreign shareholders - Sir Richard Branson's Virgin Group, Air New Zealand and Etihad - stands at 55 per cent.