Abu Dhabi-based airline to get strong foothold in domestic market.
By R. Chandrasekaran
After months of speculation and reports, the path is clear for Jet Airways to strike a deal with Etihad Airways for stake sale. This is also first case after the government had opened the gates for foreign airline companies to invest in domestic airliners.
For Etihad, it was a question of whether to go with the ongoing operator or infuse funds to bring life to the ailing and troubled Kingfisher Airlines, which is controlled by liquor baron Vijay Mallya. Etihad’s current deal with Jet Airways suggests that it prefers to keep flying with the largest private airliner by market share and is not ready to fish in troubled waters.
The agreement between Etihad and Jet allows the former to pick up equity stake of about 24 percent or 27.3 million shares for Rs.754.74 each in the latter. The offer price indicates a premium of about 31.7 percent to Jet Airways’ closing price on Tuesday.
In September 2012, the Indian government had allowed foreign airline companies to invest in domestic carrier up to a maximum of 49 percent in Indian companies. Since then, there were speculations and reports of Etihad striking a deal with Kingfisher Airlines or Jet Airways, but the negotiations were only prolonged.
The latest deal would allow the AbuDhabi-based air carrier a strong foothold in domestic circuits, which is considered a fast-growing yet challenging market especially in the wake of volatile oil price. Jet Airways will likely to get $380 million from the stake sale and is predicted to use the proceeds for retiring some of its debt, which is estimated at about $2.16 billion.
For Jet Airways, the deal provides another benefit. The market regulator Securities Exchange Board of India has advised promoters of listed companies to bring down their stake less than 75 percent. The deal allows the NRI businessman and Jet Airways promoter NareshGoyal to have comply with SEBI regulations as the company will be issuing new shares.
The deal will also provide Jet Airways international foothold. The company will likely shift at least one-third of its global operations to Abu Dhabi.
The latest deal between the two airline companies is undoubtedly a game changer since both will cooperate and use other’s stronghold to their fullest benefits, which will ultimately benefit the shareholders.