By Elton Gomes
Naresh Goyal-run Jet Airways is said to have agreed to give up its controlling stake, thus allowing Abu Dhabi-based Etihad Airways to increase its holding in the cash-strapped Indian airline by up to 49 percent, which is the maximum permissible limit for a foreign entity. Etihad currently owns 24 percent of Jet Airways, while Goyal has a 51 percent stake.
Founder and chairman Goyal till date appeared hesitant to give up control. But sources have said that he is now preferring Etihad’s offer than the one discussed with Tata Sons and other players.
“He has agreed to give up control. It was imperative,” a person familiar with the developments told Business Standard. “Etihad is likely to bring in another Indian entity, which too can invest alongside,” another source said.
Jet Airways was said to be in discussion with the Tatas for a possible share-swap agreement. However, the deal seems to be moving at a snail’s pace, while Jet is in dire need of cash. Jet requires substantial amounts to meet its operational commitments, its lease payments, its salary dues as it has not paid a certain section of its employees, including the pilots.
Apart from Etihad and Tatas, Goyal has also engaged with the consortium of Delta Airlines and Air France-KLM for the potential stake sale.
As of September 2018, Jet Airways has a debt of Rs 8,411 crore, out of which, Rs 1,968 crore is aircraft-related debt. Additionally, Jet has Rs 10,878 crore in accumulated losses and is currently working on a turnaround plan to save Rs 2,000 crore over a couple of years through several initiatives by the board.
When did the crisis begin?
In August, Jet informed its employees that the airline would not be able to operate beyond 60 days unless cost-cutting measures were put in place. Some of these cost-cutting measures included pay cuts, according to the Economic Times.
Jet Airways told its employees that they will have to take a salary cut up to 25 percent as cost of operations for airlines is increasing due to rising crude prices and a falling rupee. However, it later decided to cancel the pay cuts.
“The salaries were earlier put on hold because the management had expected to convince everyone to take a cut, but were released after the chairman’s assurance that there will be no cut,” a Jet executive told the Economic Times on the condition of anonymity.
Tata begins due diligence to buy Jet Airways
Media reports, in November, stated that Tata Group is conducting due diligence of Jet Airways in attempts to purchase a controlling stake in the cash-strapped airline, two people directly aware of the development said, Live Mint reported.
Saurabh Agarwal, chief financial officer of Tata Sons Ltd, headed the discussions, while Naresh Goyal represented Jet.
“An in-house team of Tata Sons is currently conducting due diligence on Jet Airways, which is expected to continue for the next few weeks,” one of the two people cited above told Live Mint.
Though it showed initial interest, Tata said that the deal would go through only if Goyal gave up operational control of Jet.
Goyal considering giving up reins to Etihad
Recent reports suggested that Jet Airways founder-chairman Naresh Goyal is likely to urge Etihad Airways to further invest in its equity in a bid to overcome a looming financial crisis.
Reports mentioned that Goyal was willing to consider handing over operational reins to Etihad in exchange for a fresh infusion of cash through equity and soft loans. Goyal said he would like to continue as Jet’s chairman.
People familiar with developments stated that Goyal and his team met a top management team from Etihad, which was headed by group CEO Tony Douglas, last Sunday.
Sources claim that the Etihad deal could help Jet as 11 percent of its passengers travel from India to overseas destinations. Furthermore, a potential deal with Tatas would require Goyal to give up control – which is why Etihad’s deal seems a more desirable option.
Elton Gomes is a staff writer at Qrius
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