The deal with the Abu Dhabi-based group will see the German operator relinquish control of its carrier Tuifly.
Tui’s supervisory board agreed to pursue the venture with Etihad and the Austrian low-cost airline and Air Berlin subsidiary Niki.
The new airline would be based in Vienna and operate a fleet of 60 Tuifly and Niki aircraft.
It will serve destinations from airports in Germany, Austria and Switzerland and will be 24.8% owned by Tui and 25% by Etihad
The remaining 50.2% will be controlled by the existing private foundation Niki Privatstiftung, Reuters reports.
Tui said: “Etihad is in negotiations with Air Berlin to acquire its touristic operations primarily in southern Europe and north Africa, and including Air Berlin’s participation in Niki, with the objective to contribute it to the joint venture.
“The new airline joint venture, headquartered in Vienna, is planned to serve a broad route network with its two airlines, Tuifly and Niki, a total fleet of around 60 aircraft and a seat capacity of 15 million seats per year, operating from key departure airports in Germany, Austria and Switzerland.
“Tui AG is to hold a stake of 24.8% in the joint venture, with Etihad holding 25%. The remaining 50.2% would be held by the existing private foundation Niki Privatstiftung.
“The commitments made to the Tuifly employees remain in place and are currently being further negotiated and specified. This includes the commitments to the Hanover location.
“The contractual negotiations are expected to be finalised in the next few weeks. Details regarding the future joint venture will be jointly presented by Etihad and Tui after successful completion of the negotiations.”