by Elton Gomes
Sources today told the Times of India that Tata Sons has held preliminary talks to purchase a large stake in cash strapped Jet Airways.
Tata Sons has sought management control and has shown interest in buying a 26% stake at least. This could lead Jet’s shareholders to offer an additional 26% stake.
Although a Jet Airways spokesperson reportedly said termed the development to be “totally speculative”, there’s little doubt that such a deal could immensely help the struggling airline.
As per the Times of India report, Jet Airways is keen on an equity collaboration. Previously, the struggling airline’s talks with buyout investor TPG reportedly reached a dead end owing to differences over controlling rights.
Tata’s looking to expand aviation business
Tata Sons chairman Natarajan Chandrasekaran is looking to expand the group’s aviation business through mergers and acquisitions. In April, Chandrasekaran said that the group would consider whether it needs to add another airline, which led to speculations over its interest in Air India. But Tatas did not bid for the government-owned airline.
The Group has been trying to revamp its existing portfolio by inducting new leadership and infusing funds in both AirAsia and Vistara. If rumours are to be believed, Tatas could bring in former IndiGo president Aditya Ghosh as an advisor to Tata Trust’s cancer care initiative, to steer its aviation business.
What have experts said
According to industry experts, if the deal is finalised, Jet Airways could be a better proposition for Tatas than Air India. Jet Airways is the largest airline on international routes to/from India, and it has a large network and slots at key airports.
However, experts claim that a deal would be difficult keeping in mind the friction between Tatas and Naresh Goyal, founder chairman of Jet Airways. In addition, Jet Airways is said to have been a member of the lobby group that opposed relaxation in overseas flying norms, much to annoyance of AirAsia and Vistara, which in turn caused frustration among Tatas.
However, some experts believe that Tatas will not bail out Jet Airways, as the former will be in a profitable position. “Vistara will gain significantly if Jet Airways goes down,” an expert told Business Standard.
Jet Airways’ cash crunch
High debt, rising fuel prices, and a sluggish growth have added to the financial woes of Jet Airways. The airline has been the least preferred bet among investors, with its shares declining more than 60 percent this year.
In August, the Naresh Goyal-owned airline announced that it will be introducing a 25 percent paycut to its employees. Additionally, a company spokesperson, in a statement, spoke about cost-cutting measures taken by Jet Airways, Some of these include sales and distribution, payroll, and maintenance, among many others, the email said, adding that the management is in talks with key stakeholders to enlist their full support and cooperation, BloombergQuint reported.
Jet Airways has been struggling in the face of rising fuel prices and lower ticket costs. A deal with Tatas might just rid the airline of its problems.
Elton Gomes is a staff writer at Qrius