By Prarthana Mitra
In a bid to revive Jet Airway’s financial health, the debt-ridden airline is reportedly planning to hand over its operations to Etihad Airways in exchange for cash. In the face of a looming financial crisis, Naresh Goyal, the founder chairman of Jet, has managed to rope in the Middle Eastern carrier, to invest in its equity and save the airline.
What led up to this?
According to sources close to the development, Goyal met with Etihad CEO Tony Douglas and key members of the management last Sunday in Dubai.
This meeting follows in the heels of Tata Group’s hesitation to engage with the cash-strapped domestic carrier before a thorough due diligence probe is conducted into its financial liabilities. Tata Sons had also quoted a complete ownership stake, which would force Goyal to cede control.
Where does this land the Goyals?
With Etihad currently holding 24% of the shares in Jet Airways, the deal in the works could raise this to a 49% ownership in the expanded equity base. Goyal and his wife Anita Goyal, who hold 51% at present, are reportedly prepared to dilute their stake by 35%.
While Goyal intends to continue serving as the chairman, the deal with Etihad will replenish Jet’s cash reserves through equity and soft loans, and revive its financial health. At this juncture, cash infusion is a matter of urgency for Jet Airways to bolster confidence among customers, employees, and shareholders. Moreover, the deal with Etihad is more attractive than the previous ones with Tata and another private equity fund TPG.
A sale of a portion of its 49.9% stake in Jet Privilege is also in the works. A spokesperson for Jet Airways told Mint that the airline is continuing to pursue fundraising initiatives but declined to comment on specific plans.
How does the deal fare for Etihad?
For Etihad, which holds the right of first refusal, the deal makes sense from an investment perspective. When Jet Privilege was sequestered from Jet Airways as an independent entity in 2014, it was after Etihad Airways PJSC bought a 50.1% stake for $150 million valuing the firm at $300 million. In October, it further aimed to bring about financial restructuring and devised a support plan which allows for Jet Privilege to pre-purchase discounted mileage redemption seats from Jet Airways, providing Jet with a windfall of $35 million.
Thus, not investing further would result in an overall loss for Etihad, in the event of a full-blown setback to Jet.
Furthermore, if Jet Airways isn’t resuscitated soon, it could also have a direct impact on Etihad’s direct feed of passengers, since 11% of Etihads passengers originate from India to overseas destinations. It could also intensify competition with Dubai-based rival Emirates which flies about 18% of them.
Jet Airways is the largest airline on international routes to/from India, and it has a large network and numerous slots at key airports.
Prarthana Mitra is a staff writer at Qrius