Jet Airways, the troubled Indian airline, has announced that it has reached a deal with to sell a minority stake to the UAE-carrier Etihad for an estimated USD 379 million.
A statement by Jet reveals that the airline’s board had approved the sale of 27.3 million shares to Etihad at 754.74 rupees each, a premium of 31.7 percent compared with the last trading value, and will be sold to Etihad on a preferential basis. Unconfirmed reports also suggest that the shares would be newly issued and account for 24 percent of Jet’s expanded share capital.
The news is likely to give a much needed boost to India’s struggling aviation industry. Last year, India had relaxed stringent investment rules and allowed foreign operators to purchase up to 49 percent shares in local airlines. This is the first such investment by a global carrier in the Indian aviation industry, which is facing difficult times due to stiff competition and rising operating costs. Some major airlines in the region such as Kingfisher Airways, have halted their operations due to high debts and significant cash-flow problems due to an ultra-competitive marketplace.
The deal would allow fast-growing Etihad airline to gain a larger share of the promising Indian market. Under the deal, Etihad will also retire Jet’s debt of around USD 2.1 billion at the end of this year. The acquisition is expected to boost Jet’s position in the local market as it may benefit from capital injection, strategic expertise, cheap financing and subsidized fuel imports. The stake sale will also set a valuation benchmark for further investment in other Indian airlines, such as SpiceJet Ltd.
According to Kapil Kaul, regional head of the Centre for Asia Pacific Aviation (CAPA); “It’s a game-changing opportunity for Etihad, and a game-changing opportunity for India. Over the last couple of years we have got into what I call self-inflicted challenges that Indian aviation brings to itself. This gives an opportunity, a window for the world to look at India differently.”
Strategic investment under FDI policy of the Government of India will deliver wide-ranging revenue growth and cost synergy opportunities for both the airlines.
- Alliance will bring significant passenger benefits with expanded codesharing, creating a combined network of 140 destinations.
- Alliance will bring significant benefits to the Indian economy, both in terms of growth, job creation, trade and tourism.
- Jet Airways passengers from 23 cities in India to gain direct access to an expanded global network.
- Jet Airways to enhance its services from its primary hubs of Delhi and Mumbai, and introduce new flights from Hyderabad and Bangalore.
- The strategic alliance between the two airlines will bring additional traffic, frequencies and revenues to metro airports, as well as other airports of AAI.
- New India-Abu Dhabi routes and Jet Airways to establish a Gulf gateway for flights to the U.S., Europe, Africa and the Middle East.
- The strategic investment enables Etihad Airways to tap into India’s fast-growing 42 million strong travel market.
- Both airlines passengers will benefit from fully integrated frequent flyer programs with reciprocal ‘earn-and-burn’.
- Alliance will result in both consumer benefits and/or all round efficiencies.
- This strategic investment with a USD 600 million commitment from Etihad Airways will further strengthen the financial position of Jet Airways financial.
“We are pleased to have reached this significant stage in India with Jet Airways and are certain the partnership will bring significant benefits and opportunities for global growth to both airlines.It is expected to bring immediate revenue growth and cost synergy opportunities, with our initial estimates of a contribution of several hundred million dollars for both airlines over the next five years.The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.We look forward to collaborating with Jet Airways and constructively working together with them and their stakeholders to build a sustainable, competitive and profitable airline.” — Etihad Airways President and Chief Executive Officer, James Hogan