Abu Dhabi-based Etihad Airways is close to picking up 24% stake in Jet Airways in a deal valuing Rs 1,500-1,800 crore. The deal is expected to be concluded in ten days, top civil aviation functionary said today.
Etihad's investment in Jet will be the first in this sector which was opened for foreign airlines last year. The deal size of Rs 1,500-1,800 crore means Etihad paying 25-50% premium over Jet's Wednesday stock price depending at what price the 24% stake is sold. Jet's current market capitalisation is little over Rs 5,000 crore.
Naresh Goyal owns 80% in the airline through Isle of Man registered Tail Winds Ltd and the rest is held by individual and institutional investors. It is not yet clear how the deal is being structured. Although earlier reports indicated that the airline will issue fresh equity amounting to 24%. The government rules restrict foreign investment in airlines at 49%.
The deal will help Etihad and its hub Abu Dhabi counter the dominance of Dubai which is the largest airport in the region. Abu Dhabi is connected with 119 weekly flights from India while Dubai has 352 weekly flights to India. Only about 35% of the traffic between India and Dubai/Abu Dhabi is origin-destination traffic and the balance is onward or transit traffic.
For Jet, the deal means fresh infusion of capital to cut down its debt and could also lead to rationalisation of its long haul network. A report by HSBC Research states that Jet may drop Brussels in favour of Abu Dhabi as its international network hub. Recently, two airlines expanded their code-share agreement to include Abu-Dhabi-Paris route giving indications of increasing partnership.
Etihad airways spokesperson said: “We have not received any details from the UAE and India Etihad airways office regarding the same. The Indian aviation industry offers tremendous potential, with significant passenger movement on domestic and international sectors. The investments will be made where Etihad Airways believes the commercial prospects are strong, spokesperson added.
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Jet airways spokesperson did not respond to an emailed query on this till the press time.
The deal between Jet airways, with domestic market share of around 25%, and Etihad airways having around 2% share on international routes in Indian market is believed to be strategic investment. Experts believe KFA was a losing proposition for Etihad as KFA’s revival plan had fallen flat with the DGCA and civil aviation minister after Mallya went public that it is in talks with Etihad for stake sale.
About the strategic importance of the deal, Amber Dubey, partner and head (aviation), KPMG, told Business Standard: “The Indian carrier would get access to the much-needed funds, global network, latest technology and management best practices. The global airline, on the other hand, would get access to the traffic originating from India’s interiors. The Indian passenger would gain from increased competition, which is expected to lead to better offerings, seamless travel through code shares and cheaper airfares.”
Shares in Jet Airways, the No. 2 Indian carrier, closed at Rs 579.60, 0.47% higher on the Bombay Stock Exchange.