Mumbai: Mukesh Ambani-controlled Reliance Industries Ltd (RIL), India’s largest private company by revenue, is in talks with the country’s largest private carrier, Jet Airways (India) Ltd, for picking up a small stake in the airline, according to a person familiar with the development.
This person, who did not want to be identified, said Reliance is looking at 6-7% stake in Jet Airways, which is expected to post a loss in the last fiscal year owing to high jet fuel cost and intense competition.
The idea behind buying a minority stake in Naresh Goyal-promoted airline stems from Reliance’s plans to be associated with the proposed cargo airline venture of Jet Airways, but the infusion will also come at a time when Indian airlines are bleeding money.
/Content/Videos/2008-06-17/1606 Josey RIL Jet_MINT_TV.flv
Reliance is in the process of developing two special economic zones (SEZs) spread over 10,000ha in Mumbai and Haryana and is exploring buying cargo planes for shipping out the goods generated in these SEZs.
“Jet Airways has firmed up its plans to start a freighter division with dedicated cargo planes. Reliance Industries may transfer this investment into Jet’s cargo venture at a later stage. The mode of RIL investment is not finalized. It could be issue of fresh shares or diluting promoters equity,” the same person said.
Goyal owns 80% of the shares of the airline.
A Reliance spokesperson said his company will not comment on market speculation.
“I am not aware of any such developments,” said Saroj. K. Datta, executive director of Jet Airways.
Asked about the cargo airline, Datta said Jet will think about it after settling issues of high jet fuel cost and excess capacities in the domestic market.
Meanwhile, another senior Jet Airways executive, on the condition of anonymity, said Goyal had indeed held discussions with Ambani, but he wouldn’t elaborate.
“We don’t know what is the deal structure and when will it happen,” this executive said.
Initially, Jet Airways was talking to Germany’s biggest carrier Deutsche Lufthansa AG for starting a separate cargo airline division.
Rising costs: Jet Airways chairman Naresh Goyal. ( Ashesh Shah / Mint)
“We have dropped the plan of associating with any other airline for this. We will be doing on our own,” said the same Jet executive.
Another person, who is close to Goyal, claimed the airline has already taken financial help from Reliance.
“Picking up of stake would mean translating that money into a stake as well,” he said.
Mint could not independently ascertain this person’s claim. Goyal couldn’t immediately be reached.
To fuel its expansion plan and fleet acquisition, Jet had decided to raise $400 million (Rs1,716 crore) by issuing rights shares to existing shareholders and another $400 million through qualified institutional placement or by any other model. However, the airline couldn’t raise that much capital owing to weak market conditions.
“Our capital-raising planning is very much on track. We will do that at right time. We are talking to our investment bankers,” Goyal had said last Tuesday at a press conference.
According to various industry estimates, the projected combined Indian airline losses for 2008-09 are close to $2 billion, mainly because of high jet fuel cost and excess capacity.
There has been intense speculation in recent weeks about various airlines selling stakes or merging in an attempt to deal with mounting losses stemming from sharply higher fuel prices and ticket prices that have continued to be soft. Anil Ambani of Reliance-Anil Dhirubhai Ambani Group was said to be interested in SpiceJet along with other airlines. Shares of Jet Airways slipped by 2.08% on the Bombay Stock Exchange on Monday to close at Rs534.10. Shares of Reliance rose 0.73% to close at Rs2,284.85.