Jet-Etihad deal back on runway

Abu Dhabi airline to buy Jet's three flight slots at Heathrow; move seen as first stage of stake buy

Talks of a deal between Naresh Goyal-promoted Jet Airways and Abu Dhabi-headquartered Etihad Airways were back on track on Wednesday, with Etihad announcing it was buying Jet’s three flight slots at London’s busy Heathrow airport for $70 million (Rs 371 crore).

This was significant, given that differences had emerged between the two airlines last week over operational control and the quantum of stake Etihad would buy in Jet, virtually jeopardising the deal.

Under the terms of on Wednesday’s first stage of the deal, after selling the slots to Etihad, Jet would lease those back from it and continue to fly to London. Etihad, on the other hand, would use those as a collateral for an undisclosed amount of low-interest loan it would give Jet to finance Goyal’s expansion plans. Analysts say the loan amount could be close to $400 million (Rs 2,120 crore), at an interest rate of only three per cent.

Confirming the transaction, Etihad on Wednesday said in a statement: “The deal (sale and leaseback of slots) strengthens the existing commercial relationship.” The airline also made it clear that its negotiations for a possible stake purchase in Jet was back on track, saying: “Etihad continues to progress on discussions about further investments in Jet Airways.”

A senior Jet executive said: “It is a sale-and-leaseback arrangement to get low-interest loans to pay some expensive rupee loans.” He, however, denied the loan amount was $400 million.

The second stage of negotiations focus on the final extent of equity stake Etihad would pick in Jet — whether it would be 24 per cent, or 49 per cent, or an option to raise stake to the maximum permissible 49 per cent at a later stage. Also being negotiated are the composition of the board and Etihad’s representation on it, and the likely division of operational control.

The talks between the two sides had got stuck last week after Etihad put some fresh conditions for the deal. It had sought the option to increase its stake in the Indian airline to 49 per cent, instead of just the 24 per cent being discussed earlier. It had also wanted control over Jet’s fleet acquisition policy, besides board representation in sync with its investment in the Indian carrier.

The conditions had come close on the heels of Malaysian low-cost carrier AirAsia announcing a joint venture with Tata Sons in which it would hold 49 per cent stake and operational control. It is believed the Jet-Etihad negotiations now are to reach a middle ground on these issues.