Jet Airways swings to profit ahead of likely Etihad deal

Airline posts a profit of Rs.85 cr in the Dec quarter compared with a loss of Rs.101.22 cr in the year-ago period
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First Published: Fri, Feb 01 2013. 05 08 PM IST
The quarter that has gone by was especially good for Jet and its rivals because Kingfisher Airlines didn’t have any flights throughout the three-month period. Photo: Abhijit Bhatlekar/Mint
The quarter that has gone by was especially good for Jet and its rivals because Kingfisher Airlines didn’t have any flights throughout the three-month period. Photo: Abhijit Bhatlekar/Mint
Updated: Sat, Feb 02 2013. 12 33 AM IST
Mumbai: Jet Airways (India) Ltd, the nation’s second-largest airline by passengers carried, swung to a profit in the third quarter, ahead of a likely deal that will see Etihad Airways PJSC acquiring a stake in the airline.
The two sides are in the final rounds of discussion, with the United Arab Emirates (UAE) national airline poised to buy a 24% stake for around $300 million (around Rs.1,600 crore), according to people familiar with the terms. India’s aviation and trade ministers on Thursday backed a possible deal.
Jet Airways reported a net profit of Rs.85 crore in the quarter ended December against a net loss of Rs.101.22 crore in the year-ago period. Sales rose 6.76% to Rs.4,205.77 crore.
The airline had been expected to post a net profit of Rs.34.01 crore in the third quarter (Q3) on revenue of Rs.4,720.70 crore, according to a Bloomberg survey of six analysts.
“Overall profitability challenges remain for Jet Airways, however,” said Kapil Kaul, chief executive officer (South Asia) at Centre for Asia Pacific Aviation, or Capa.
The airline’s shares barely budged on Friday, rising 0.1% to Rs.622.65 each on a day BSE’s benchmark Sensex fell 0.57% to 19,781.19 points.
The fiscal third quarter is usually the most profitable for domestic airlines owing to increased travel during the holiday season. The quarter that has gone by was especially good for Jet Airways and its rivals because Kingfisher Airlines Ltd didn’t have any flights throughout the three-month period, leading to a reduction in the number of seats that sent fares soaring.
Ticket prices rose so high that travel demand was dented, and 2012 ended with a contraction in the number of travellers for the first time since 2008. Kingfisher, struggling with financial problems, hasn’t been able to resume services.
India’s second-largest low-fare airline SpiceJet Ltd posted a profit of Rs.102 crore for the peak October-December quarter, compared with a loss of Rs.39 crore a year ago, gaining from increased airfares though it flew fewer passengers, the company said last month. The airline’s revenue rose 37% to Rs.1,603 crore.
Jet, SpiceJet and Kingfisher are the three Indian airlines that are listed. Kingfisher is yet to announce financial results.
Officials of Jet Airways and Etihad Airways met civil aviation minister Ajit Singh and commerce minister Anand Sharma on Thursday to seek their support for the proposed deal. On Friday, they met finance minister P. Chidambaram. The deal has been delayed because of Jet Airways’ complex shareholding structure.
Jet is controlled from the Isle of Man tax haven through founder Naresh Goyal’s Tailwinds Pvt. Ltd. Tailwinds controls 80% of Jet Airways and is an overseas corporate body. As per the rules, Jet is, therefore, already more than 49% controlled by a foreign holding company, but it has been granted special exemption by the government.
In September, the government said overseas airlines would be allowed to acquire a stake of as much 49% in local airlines. Until the change was made, overseas airlines weren’t allowed to take advantage of the 49% foreign direct investment limit.
The aviation minister said he didn’t expect any hurdles in the way of Etihad picking up a stake in Jet Airways.
In the first stage of the investment, Etihad will likely acquire a stake of up to 24% in Jet Airways—just under the level at which an open offer would be triggered—at a valuation of $1.3-1.4 billion, Capa said in a report released on Thursday.
“This represents a premium of around 35% on the current market capitalization of the airline. The investment is expected to take place through the issue of preferential shares and warrants,” the report said. “At a later stage Etihad’s stake could be increased to 49% at which time the de-listing of Jet Airways may be an option as the promoters may find a private structure to be more suitable. Other opportunities include a potential investment in the carrier’s loyalty programme, JetPrivilege, which could be hived off as a separate business.”
The report said Etihad Airways is expected to secure a seat on the board of Jet Airways and have a say in the induction of some key executives, subject to regulatory and security approvals.
As a result, Goyal, founding promoter and chairman of Jet Airways, will relinquish full control and move to a shared management structure, the report said. “This will bring a new set of skills to the business, a positive development for Jet Airways as it prepares for its next phase of growth,” the Capa report said.
Consolidated profit (including low-fare subsidiary JetLite), which is at Rs.93 crore, has been eroded by Rs.48 crore of foreign exchange losses and to the tune of Rs.55 crore from the grounding of the international fleet as some services have been discontinued.
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First Published: Fri, Feb 01 2013. 05 08 PM IST
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