Mumbai / New Delhi: Jet Airways (India) Ltd is in talks with Abu Dhabi-based Mubadala Development Co., an investment company promoted by the government of the emirate of Abu Dhabi, for a Rs1,000 crore loan to help fund working capital needs and expansion plans.
The carrier and Mubadala are in the process of finalizing the deal, a senior Jet Airways executive said on condition of anonymity.
Jet executive director Saroj Kumar Datta and chief executive Wolfgang Prock-Schauer didn’t respond to messages. “We checked, it’s a market rumour,” a spokesman for Mubadala, who asked not to be named, said on phone from Abu Dhabi, declining to comment further.
Jet is promoted by Naresh Goyal and is India’s largest private carrier.
India’s airlines are all scouting for funds in an industry that is collectively estimated to post a $2 billion (Rs9,520 crore) loss this fiscal year, mainly due to high jet fuel cost and overcapacity in the market.
Scouting for funds: Naresh Goyal. Ramesh Pathania / Mint
“It is no wise decision for any airline to sell equity to raise working capital—raising capital preferably through a private equity investor who will stay invested for a long time and not speculative in nature,” said Mark Martin, an analyst at audit and consulting firm KPMG, reiterating that he wasn’t aware of any discussions with Mubadala. “Jet Airways needs money as international operations are no child’s play. International carriers flying into India are also very aggressive to take away (the) country’s traffic.”
“Goyal might have pledged promoter company’s shares to secure this loan,” speculated another leading aviation analyst while refusing to be identified. Mint couldn’t ascertain any of the terms and conditions of the proposed loan or whether the funding will result in any equity dilution.
On Tuesday, the Jet Airways scrip slipped 6.60% on the Bombay Stock Exchange to close at Rs188.85 on a day the benchmark index lost 6.61%.
Mubadala manages a multi-billion-dollar portfolio of regional and international investments, and focuses on developing and managing an extensive and economically diverse portfolio of commercial initiatives. According to its website, Mubadala’s commercial strategy is fundamentally built on long-term capital-intensive investments that deliver strong financial returns.
Mubadala has made several investments in aviation, having announced in February a $500 million investment to build a composite aerostructures plant in Abu Dhabi.
Engine maker Rolls-Royce Plc. and Mubadala launched a joint venture firm mid-year to support aircraft maintenance in the West Asian region. And Mubadala also announced a $8 billion framework agreement with US-based General Electric Corp. on commercial finance, clean energy research and development and aviation.
And in October, Mubadala formed a partnership with Italian aerospace firm Finmeccanica Spa. to manufacture aerospace composite components for planes.
After securing necessary approvals from shareholders in 2006, Jet had deferred its proposal to raise $800 million from the market due to poor market conditions. Jet is currently in the process of rationalizing its international operations, resulting in spare planes on the ground.
The same Jet executive, who spoke to Mint, said the airline’s top brass are in talks for leasing four Boeing-made B777 planes to Turkish Airlines while also discussing with West Asian carriers for leasing out two Airbus A330 planes, that are used to serve long-haul routes.
Jet had originally planned for inducting 22 wide-body planes by the end of November, but later it decided to rationalize international operations that resulted in deployment of only 16 such planes. Four B777 and two A330 planes are thus lying idle.