Jet Airways confirmed on Thursday it was in talks with Abu Dhabi-based Etihad Airways for a potential stake sale though terms have not been finalised. Various structures are being explored by the legal and commercial teams and care is being taken to ensure that all regulatory requirements are fully complied with, the airline said in a filing to the BSE.
By its very nature, there cannot, at this stage, be a firm time line as to the progress of these negotiations, considering the complexity of transnational transactions such as this, and the complexity of the legal requirements of the regulatory structure, the company said.
Etihad is expected to pick up a 24% stake in Jet for around R1,600-1,800 crore, valuing the carrier at about R6,259-7,511 crore. Jets market capitalisation as per Thursdays share price is R5,242 crore. The scrip has risen 65% since the government relaxed rules on FDI in Indian carriers. The airline reported a net loss of R1,236.10 crore in 2011-12 on revenues of R14,815.91 crore.
From Jet Airways perspective, the most significant advantage from a potential deal will be more equity and access to loan funds. The main benefit to Etihad could probably largely be from better traffic feed from India into Abu Dhabi, a recent HSBC report noted.
Etihad Airways is the national airline of the United Arab Emirates fully owned by the Abu Dhabi government. After starting commercial operations in November 2003, it has gained a fleet strength of 67 aircraft (a mix of Airbus, Boeing, narrow-body and wide-body aircraft including six dedicated freighters) and plans to grow to 158 aircraft by 2020. The HSBC report noted that a key feature of Etihads strategy so far has been its strategic partnerships and code shares with airlines all over the world.
Jet and Etihad already have a code-sharing agreement, and a tie-up could see Jet emerging as more formidable rival to Air India, while Etihad would be able to offer greater competition to Dubai-based Emirates, which carries a big slice of traffic between India and the Middle East.
Jet losses have eroded its shareholders equity and the net debt as at the end of September 2012 was close to Rs 8,900 crore for the standalone entity; the groups balance sheet debt is approximately Rs 12,000 crore. The groups annualised interest expenses based on first half of 2012-13 are estimated at Rs 1,200 crore. Analysts point out the group is