On Friday, May 10, Etihad Airways emerged as the sole bidder for a stake in Jet Airways, India’s largest airline that is struggling to stay afloat after amassing crores of debt. Although Etihad proposed a bid for Jet, the company said it would only invest enough to retain its 24% stake in the airline.
Etihad told the lenders, headed by State Bank of India (SBI), that it will only invest in Jet as a minority partner holding 24%. It added that the lenders had to take the responsibility of finding major partners who will provide Jet with the funds to be restructured.
Etihad is also demanding that the lenders take only 20% of the loan money owed to them.
A source close to the negotiation told the Economic Times, “Etihad has made it clear that it’s not up to it to find a partner. It’s the responsibility of the banks that are running the process.”
Jet and Etihad’s tango
Etihad first bought a 24% stake in Jet in 2013 for just over Rs 2,000 crore. This deal was the first foreign investment of its kind since India allowed international carriers to invest in domestic airlines, says Quartz India.
However, Etihad began to tighten its reins after Jet plunged into debt.
Claiming that the resolution process was taking too long, Etihad CEO Tony Douglas met with SBI Chairman Rajnish Kumar and offered to sell off Etihad’s 24% stake to the lenders. Etihad was also demanding that former Jet CEO Naresh Goyal step down from his position on the board.
An Etihad representative said, “As a minority shareholder, Etihad is working closely with Indian lenders, the company, and Jet stakeholders to facilitate a solution for Jet Airways”.
On March 26, Goyal eventually resigned from his board position and reduced his equity in the airline from 50% to 21%. Even then, Etihad’s interest in Jet seemed to have cooled.
After reporting losses for two consecutive years, Etihad made a statement promising to restructure. In 2016, the company had to relieve 50% of its pilots and reduce its fleet and destinations.
Two of Etihad’s previous aviation investments— Air Berlin and Alitalia— have filed for bankruptcy after facing severe competition from more cost-efficient airlines like Lufthansa.
Etihad itself is trying to hold its own with Emirates and Qatar Airways.
Next steps for Jet Airways
Although Goyal and his co-founder and wife Anita have stepped down from their positions on the board, they still own 21%. Etihad holds 24%, the lenders have claimed 31%, and the rest is held by the public.
The lenders are waiting for the RBI to approve their proposal of exchanging the debt for equity in the airline. Once this deal is approved, the lenders will be able to sell their stake to an interested investor, says Economic Times.
Jet needs Rs. 15,000 crore to restart its operations after temporarily shutting down. The future of Jet’s 22,000 personnel is also uncertain.
After the airline announced its shutdown, its pilot and grounds staff protested against mismanagement in Delhi and Mumbai. The All India Jet Airways Officers & Staff Association also asked Prime Minister Modi to step in and bail out the airline.
In a rare move, Jet’s employee unions have offered to buy out the airline from the management by putting together their salaries.
Jet’s Society for Welfare of Indian Pilots and Jet Aircraft Maintenance Engineers Welfare Association submitted a proposal to SBI to takeover the airline.
According to Business Standard, the unions offered to pay the lenders Rs 7,000 crore, including Rs 4,000 crore from the employee stock option programme to be paid over five years. The remaining Rs 3,000 crore will be obtained from outside investors.
However, this amount is less than what Jet requires, even as immediate, interim funding.
To help remedy the situation, Taj Mahal Palace Hotels, owned by the Tata group, offered Jet’s staff jobs.
The lenders were previously in conversation with the Tatas who also own AirAsia and Vistara. However, those negotiations did not amount to a bid from the Tata group.
In the bidding process, reports said that TPG Capital, Indigo Partners, and National Investment and Infrastructure Fund (NIIF) submitted expressions of interest or non-binding proposals to takeover the airline. However, the lenders were dissatisfied because none of their plans involved a long-term vision for the airline.
The Economic Times is reporting that the Hinduja Group is now being courted as investors for Jet.
The lenders must now spend the next few weeks evaluating Etihad’s conditions and trying to find other bidders who are serious about investing in Jet and rescuing it from a permanent shutdown.
Rhea Arora is a Staff Writer at Qrius.