Jet Airways loyalty programme stake sale faces headwinds, challenges

Equity infusion hinges airline's financial health, control. Analysts say overhaul needed for survival

Jet Airways proposed stake sale in loyalty programme and equity infusion in the airline is facing challenges but analysts say that the sale alone will not be sufficient to tide over the financial crisis. 

An overhaul of business along with fleet and network reduction may be required to save the airline from collapse, they said.

A report in Mint newspaper on Wednesday said private equity firms Blackstone and TPG Capital have second thoughts over-investment in Jet Airways loyalty programme.

While discussions are underway and due diligence is being carried for stake sale in Jet Privilege Private Limited, no firm offer has been given. The concern is primarily around Jet Airways financial health. A loyalty programme will not have a value if the airline's survival itself is at stake, the suitors are believed to have told the airline.

Separately there have been talks with PE firms over equity infusion in Jet through preferential allotment of shares. Jet Airways chairman Naresh Goyal owns 51 per cent stake while Etihad Airways owns 24 per cent. Fresh equity infusion in the airline hinges on the issue of control and PE investors will not put in money if they have no say in running the affairs or the company, sources said. Goyal who is hands-on in running the airline has in past resisted diluting his control.

Analysts say drastic steps will be required for the survival of the airline.

"Selling part of its loyalty programme will temporarily boost the coffers, but that’s all it will do. It's a plaster over a much bigger wound. What is needed is a huge equity infusion - that's unlikely to come given the precarious state of affairs. Over to plan B - a full and immediate overhaul and retrenchment of size to save itself from a potentially far bigger collapse," said Saj Ahmad, chief analyst, StrategicAero Research.

"Desperate situations require desperate measures. The sale of the remainder of the loyalty program will be insufficient to put Jet Airways back on the right path. The airline business is cash intensive and if Jet is unable to drastically reduce both fixed and variable costs, it might not be here for long. Management must consider shrinking its network, reduce the fleet and cancel delivery of new aircraft for next year," said Steve Forte, former CEO of Jet Airways.

A spokesperson for Jet Airways told Mint that the airline was "actively exploring all possible opportunities to turn around the business", as approved by its board on 27 August. The steps include cutting costs and monetizing Jet Privilege.