Jet Airways has said it is in talks with Abu Dhabi based Etihad Airways for a potential 24% stake sale in the Indian airline. Speculations were high during the past few days as reports suggested that Etihad was in talks with both Jet Airways and the ailing Kingfisher Airlines, which is promoted by millionaire Vijay Mallya, for possible investment opportunities.
According to sources, Etihad may offer up to $350 million for the stake in Jet Airways, which is India’s second largest airline by passenger numbers. Etihad’s keenness in both airlines had left industry pundits guessing as to the reason behind showing interest in Kingfisher, which is currently grounded and under a mountain of debt.
Reports have also suggested senior executives from Kingfisher had travelled several times to Abu Dhabi to meet with Etihad representatives, however, this could not be confirmed. Some industry insiders believe Etihad used Kingfisher to “play the field” to possibly get a better deal with Jet, which although suffering from challenging financial strains, is in much better shape than the other.
“Giving money to Kingfisher would have made no sense,” says an airline industry source at the condition of anonymity. “The airline is in more than Rs 8,000cr debt and putting money in it would not just be devoid of sense, but would also be certain commercial hara kiri.”
Meanwhile, Kingfisher Airlines has also lost its flying license as it failed to convince the Directorate General of Civil Aviation (DGCA) and the civil aviation ministry of its revival plans. Other reports also suggest the may lose slots at airports, a vital commodity in the aviation business. Along with this, the company owes hundreds of crores to oil companies and the Airports Authority of India (AAI) along with months of backlogged salaries to its employees.Image 2nd
Jet, in a statement released to the Bombay Stock Exchange (BSE) has said that “various structures” are being explored by legal and commercial teams on how a deal would be settled between itself and Etihad. Currently Jet Airways founder, Naresh Goyal, holds 79% stake in the airline. No concrete agreements have yet been achieved between the two sides.
The deal is being seen as a positive step in a time of gloom for the Indian aviation sector. Although 49% FDI is now allowed in the industry, experts have said that foreign investments alone will not save them from continuous losses. The potential Jet-Etihad marriage however is being seen as a good deal with long term benefits for the Indian carrier.
“The deal will be good for the airline. It will give Jet a stronger presence in the international market, which is extremely competitive. Jet will be able to use Etihad’s Abu Dhabi base and the airline’s international route network to its benefit,” says Amber Dubey, partner and head of Aviation at global consultancy firm KPMG.
“A Jet-Etihad alliance can give passengers from India greater access via Jet’s vast domestic route network and Etihad’s hub at Abu Dhabi. Both the airlines can leverage synergy benefits in areas such as procurement of oil, aircrafts, spares, aircraft maintenance, crew training and so on.”