* CEO recruited from UK's MOD, worked before in Abu Dhabi
* Etihad pursuing strategy review
* Has backed away from some airline investments (Adds details, background, analyst quote)
Sept 28 (Reuters) - Abu Dhabi has recruited Britain's top defence buyer to run troubled Etihad Airways which is rethinking an aggressive expansion strategy that led it to huge losses last year.
Tony Douglas, who has also run Abu Dhabi and London Heathrow Airports, will join Etihad as group chief executive in January from Britain's Ministry of Defence, the airline said in a statement on Thursday.
Douglas' decision to quit the ministry, two years after being appointed by then Prime Minister David Cameron to overhaul the running of Europe's largest defence procurement budget, was unexpected.
Analysts said it signalled the difficulties of reforming Britain's 16 billion pounds ($21.5 billion) a year defence equipment plan.
"If the rainmaker who was brought in as an outside businessman is leaving, that is not good news for the MOD," said UK defence analyst Francis Tusa.
His departure leaves a void just as Britain plunges into a war of words with one of its biggest defence equipment suppliers, Boeing, over a trade row that could affect aerospace jobs in Northern Ireland..
Douglas replaces veteran Australian CEO James Hogan, who developed Etihad into an aggressive rival to Dubai's Emirates and Qatar Airways over a 10-year period. Hogan's departure was announced in January.
Douglas will likely face the daunting task of deciding what to do with what remains of Etihad's sprawling investments in foreign airlines Virgin Australia, Air Seychelles, Air Serbia, and India's Jet Airways.
Problems with its investments in troubled European airlines and provisions on aircraft plunged the airline into a $1.9 billion loss last year, its first since 2010.
Etihad has already said it would no longer financially support Air Berlin and Italy's Alitalia, two of its prized investments. Both airlines have filed for administration this year, and Etihad sold its stake in a third European carrier, Darwin, in July.
Chairman Mohamed Mubarak Fadhel al-Mazrouei said Douglas was "keenly familiar with Etihads challenges and opportunities in a rapidly changing industry."
Abu Dhabi first recruited Douglas in 2010 to head its state ports company and he later moved to Abu Dhabi Airports in 2013 to oversee a multi-billion new terminal project by 2017.
He left in 2015 to take on the role with the British government, and will return to Abu Dhabi with the opening of that terminal now delayed until 2019.
Douglas's history in Abu Dhabi "is likely to be significant in providing a sense of trust by the owners," aviation consultant John Strickland told Reuters.
"He will need to be focused on the restructure of the airline as it divests of some of it's significant equity stakes and reviews its network and moderates its growth ambitions."
Ray Gammell, who has served as interim group CEO since May will return to his position as Group Chief People & Performance Officer, Etihad said. The airline group is also looking for a new chief financial officer. ($1 = 0.7445 pounds) (Editing by Keith Weir)