Is Etihad the only option for Jet?

Foreign airlines are unlikely to help out till Etihad is around; Indian businesses may not like to join hands while Goyal is in the pilot's seat

“It’s hard to understand what Etihad Airways plans to do,” Tim Coombs, director of UK-based consultancy Aviation Economics, said recently in an interview. While Coombs may have been speaking in the context of the company’s global strategy, his statement could also be put to the test in the case of Etihad’s plans for its Indian partner Jet Airways.

Etihad hiking its stake from the current 24 per cent to 49 per cent, which is the cap for any foreign airline, seems to be the only feasible option for Jet Airways to stay afloat, people in the know suggest, contrary to popular opinion on the subject. Such talks between the two have been held in the past and they have collapsed as Jet boss Naresh Goyal, who has a 51 per cent stake in the airline, has been clear on who should call the shots and how much control to give up. But when it’s about survival, things can change fast, and so can solutions.

Reports on delayed salary, piling losses, cost-cutting measures, and crew callousness at Jet in the recent past have conveyed a sense of things gone terribly wrong. But, when an insider, who’s seen things going wrong from close quarters, gives an account of the level of turbulence at Jet and what could be the best solution, you sit up. 

From that ringside view, it appears that Jet needs at least $1 billion immediately to run the airline. Without that money coming in, it might be an extremely tough road (or flight) to 2019 for the airline. A deal has to be struck within the next two months, said one person familiar with the business pointing at the critical need for funds. On the positive side, there’s hope still that a deal will happen to prevent Jet from going the Kingfisher way. The question is deal with whom?

Well, there have been negotiations with Indian and international airlines — with marquee names and not so marquee too. But things haven’t clicked. Foreign airlines are unlikely to come in while Etihad is around as a partner. Indian businesses may not like to join in till the time Goyal is in the pilot’s seat. Many private equity players too have talked and opted out of what may have looked like possible deals. Deals have mostly failed over the issue of control more than over valuation, those in the front seats believe. While Jet and Etihad have been in a now-on and now-off relation as joint venture partners, this is a turning point.

In such a scenario, will Etihad, which has recorded serious back to back losses globally, faced write-downs and is now treading cautiously, pump in more money into troubled Jet? Looks like the option is not closed, if Etihad gets what it wants in terms of board rejig and people in key roles at Jet, of course with management caveats that come with FDI rules.

Etihad, a rival to Emirates and Qatar, has already announced a financial restructuring and support plan for Jet, which has run up a net debt of Rs 73 billion as of June 30. The proposed plan includes a $35-million cash pre-purchase payment to Jet’s fequent flyer programme, Jet Privilege Pvt Ltd (JPPL), where Etihad holds 50.1 per cent and Jet the remaining stake. In addition, private equity players are in talks to buy the Jet share in the loyalty scheme. Even at $700-800 million valuation of JPPL, Jet’s stake sale in the scheme will not fetch the airline more than $400 million — that alone will not be enough.

The telltale signs of things going wrong at Jet were there some 18 months ago, it seems, but nobody rang the alarm bell. In aviation, the proverbial rainy day comes sooner than in any other business perhaps. Jet, with an entrepreneur founder who has found it tough to step back, is no different. The next board meeting of Jet, slated after a fortnight, may give some clarity on the future of the airline and whether Etihad is part of the survival script or not.