Etihad set to buy 24% in Jet for $300 mn

The deal will make Jet Airways the first Indian carrier to take advantage of the new rules allowing FDI in aviation
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First Published: Sun, Jan 27 2013. 09 21 PM IST
If the deal goes through, it will help Jet Airways increase its international reach and reduce some of its debt burden. Photo: Abhijit Bhatlekar/Mint
If the deal goes through, it will help Jet Airways increase its international reach and reduce some of its debt burden. Photo: Abhijit Bhatlekar/Mint
Updated: Mon, Jan 28 2013. 03 11 PM IST
Mumbai: Jet Airways (India) Ltd, the country’s second-largest airline by passengers carried, will sell a 24% stake to Etihad Airways PJSC for around $300 million, according to two people close to the development, neither of whom wanted to be named.
The deal will make Jet Airways the first Indian carrier to take advantage of rules introduced by the government in September allowing a foreign airline to pick up a stake of as much as 49%. The shares that will go to the Abu Dhabi-based national airline of the United Arab Emirates (UAE) will be by way of new stock and the dilution of promoter Naresh Goyal’s 80% holding.
“The Jet Airways-Etihad deal is almost structured and is waiting for some minor fine-tuning. It’s a win-win agreement for both,” said one of the people cited above. He said both airlines are working out the legal, commercial and operational aspects of the deal.
Executives from both the airlines declined to comment.
Jet Airways will gradually scale down operations at its current international hub of Brussels and move this to Abu Dhabi, said the two people. Jet Airways started using the Belgian capital as a hub in September 2007, when it began flying to Europe, making it the first Indian airline to have full-scale operations outside the country besides state-owned Air India.
The government allowed overseas carriers to pick up stakes in local airlines following demands by cash-strapped domestic airlines looking to help shore up capital and reduce debt.
Both Jet Airways and Kingfisher Airlines Ltd, the latter grounded since October, had been in stake-sale discussions with Etihad Airways. Jet Airways told BSE on 3 January that it was in discussions with Etihad Airways for a potential investment without divulging details, indicating it might be closer to a deal with the West Asian airline than rival Kingfisher Airlines. Malaysia-based AirAsia Bhd Group has said it will continue to explore opportunities in India following the policy changes.
If the deal goes through, it will help Jet Airways increase its international reach and reduce some of its debt burden.
Etihad Airways, which began operations in 2003, serves 86 cities in West Asia, Africa, Australia, Asia, Europe and North America, with a fleet of 70 Airbus and Boeing aircraft. It has at least 90 aircraft on firm order, including 10 Airbus A380s, the world’s largest passenger aircraft. Jet Airways currently operates a fleet of 99 aircraft and flies to 73 destinations in India and at least 20 overseas.
“Jet Airways can benefit from the added economies of scale and scope (relating to fleet, operations and fleet, for example), infusion of cash, membership in a different partnership (including a membership in SkyTeam in due course), potential opportunity to develop strategic partnership with a broad spectrum of airlines such as Air Berlin and Virgin Australia, and, most important, access to management talent with proven experience and a global perspective,” said Nawal Taneja, professor emeritus in the department of aviation at Ohio State University. SkyTeamis a global grouping of airlines that’s a rival to Star Alliance and oneworld. On its website, SkyTeam says it is actively looking for partners in Latin America, India, Southeast Asia and the larger Asia Pacific.
Jet Airways was said to be in the running for a place in Star Alliance shouldering aside Air India’s bid for membership, Mint reported on 14 January.
A Jet-Etihad deal could put Air India back on track for membership of Star Alliance. Oneworld has put the entry of Kingfisher Airlines on hold, citing the latter’s financial conditions.
The UAE carrier has stock in Air Berlin, Air Seychelles, Virgin Australia and Aer Lingus.
A deal would allow Etihad to tap the ninth-largest aviation market in the world, putting it in a better position to compete with Dubai-based rival Emirates, Taneja said.
Emirates flies to 128 destinations in 74 countries across six continents with 195 wide-bodied Airbus and Boeing aircraft and has an additional 204 planes on order. It has been serving India since the airline’s launch in 1985 and it currently flies 185 flights per week from 10 Indian cities.
“Competition is good for us. It will keep us alert,” said Essa Sulaiman Ahmad, vice-president, India and Nepal, at Emirates.
If the deal goes through, this will be the second time Jet Airways is getting foreign direct investment.
In 1993, Kuwait Airways and Gulf Air bought 20% each in Tail Winds Ltd, an overseas corporate body owned by non-resident Indian (NRI) Naresh Goyal, which held all of Jet Airways’ stock. But in April 1997, the ministry of civil aviation ordered Jet Airways to conform to the rule that overseas airlines shouldn’t hold stock in India carriers (the rule that was changed in September last year). Goyal then acquired the 40% holding.
Jet Airways was incorporated on 1 April 1992, as a private company and commenced operations as an air taxi operator on 5 May 1993, with a fleet of four leased Boeing 737 aircraft. The airline was granted scheduled airline status (allowing it to have a network timetable) on 14 January 1995.
India is always going to be on the medium to long-term radar for most big international carriers, said Bharat Mahadevan, who until recently was regional manager for north-east Asia at Jet Airways.
“With Kingfisher down, the international carriers will be waiting and watching to see if the Indian carriers can pick up the yields and move back into profitability on a sustained basis,” he said. “And then they would definitely be interested in investing. The biggest problem for the ailing Indian aviation industry is not the government taxes or the high cost of fuel—it’s the over-capacity in the market.”
Jet Airways will approach the Foreign Investment Promotion Board for permission to tweak its ownership pattern to facilitate an equity investment by Etihad Airways, Mint reported on 3 December. Jet Airways needs to change its shareholding pattern as promoter Goyal holds his stake through the Tail Winds overseas corporate body. Tail Winds, registered in the tax haven Isle of Man, owns 80% of Jet Airways, with the rest held by the public.
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First Published: Sun, Jan 27 2013. 09 21 PM IST
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