Etihad hits the pause button on Jet Airways’ rescue deal

The recent developments are part of the ongoing negotiations between the two companies and, if the talks fall through, it is expected to cast a shadow on the prospects of Jet Airways’ revival. The airline continues to fight concerns and allay fears of its employees, pilots and investors.

Etihad has not been able to find a local partner to replace Jet’s founder-chairman Naresh Goyal, who will have to step down if Etihad invests in the airline, according to the people mentioned above.

Foreign direct investment (FDI) rules allow a foreign carrier to own up to a 49% stake in a domestic airline but mandate that it must have a local partner to service passengers in India.

Etihad also wants an exemption from the open offer that may be triggered if the ownership structure of the company changes after Goyal’s exit. Most importantly, it wants a commitment from banks on additional loans, once it infuses equity into the company, as the Abu Dhabi-based airline expects that Jet Airways will require more funds to sustain its operations.

Etihad’s board is expected to meet next week to discuss the potential investments, including the likely exit of Indian lenders who are expected to convert a large part of their debt into equity, making them the largest shareholder, the people mentioned above said.

“The banks cannot remain invested in Jet Airways infinitely and they will need to find a buyer for their stake" said one of the persons cited above. “So far all efforts to find an Indian partner who can replace current promoter Naresh Goyal have come to naught," he said. Etihad and the Indian banks have reached out to several large business groups in India, but none were willing to commit, he said.

View Full Image

NRI billionaire and founder of UAE’s Lulu Group, M.A. Yusuf Ali, who had initially evinced interest in Jet Airways, has decided against it. India’s Adani Group, which was also approached by Etihad for an investment, also declined the offer, the people mentioned above said.

Etihad has aggressively invested in several foreign carriers as part of its strategy to expand market share, but things haven’t turned out the way it hoped. In 2015, Etihad had written off its investment in Italian carrier Alitalia, which filed for bankruptcy after posting a loss of more than $117 million. It took another hit in 2017 when Germany’s Air Berlin filed for insolvency, after Etihad said that it was no longer in a position to provide financial support to the airline which had run into losses of close to $1 billion over six years.

Goyal’s share can drop from 51% now to 20%. Banks, led by State Bank of India (SBI), are expected to convert a portion of their debt into equity, making them the largest shareholder.

Indian laws also say that management control of a domestic airline should remain with a local entity.

Under the Securities and Exchange Board of India’s takeover code, any company acquiring control in a listed company, or when its stake crosses 25%, must make an open offer to its minority investors. Therefore, any additional equity infusion by Etihad, which owns 24% in Jet Airways, could go past the open offer threshold.