Jet-Etihad deal to be signed next month

Negotiations have been taking place over the last several months

Etihad Airways is expected to conclude a deal with Jet Airways next month which will see the Abu Dhabi based airline pick up 24 percent stake in India's second largest carrier by market share.

Negotiations between the two airlines have been taking place over the last several months and a term sheet will be signed next month. According to sources Etihad will pick up 24 percent stake in a deal valued around Rs 1600-1700 crore. Jet's share closed 4 percent higher at Rs 611.85 on Bombay Stock Exchange on Friday. Sources indicated that there was a broad agreement between both the sides on various issues and a preliminary agreement was expected next month.

 

Naresh Goyal owns 80 percent stake in Jet Airways through his Isle of Man registered Tail Winds Ltd. The deal will be the first after the government relaxed rules last year allowing foreign airlines to invest upto 49 percent in Indian carriers.

Jet posted a loss of Rs 1236 crore in FY 2012. The first half of the current year saw a mixed result and the airline has been trying to trim its loss by reducing capacity and pulling out of loss making domestic and international routes. The airline had in the past tried to raise funds through equity investors in India and through qualified institutional placement (QIPs) but yielding no result. Equity infusion from Etihad will allow Jet to improve its debt equity ratio and cut down on debt.

An another possible outcome of the agreement could be the shifting of Jet's international hub to Abu Dhabi. Its main hubs for international routes in India are Mumbai and Delhi and Brussels is its only hub outside the country. The airline could replace Brussels with Abu Dhabi as its hub and operate flights from there as a part of wider alliance with Etihad.

"Various structures are being explored by the legal and commercial teams," Jet said in a statement to the stock exchange earlier this month, adding any structure would comply with Indian rules."Since no agreement has been reached with Etihad as yet no regulatory approvals have been sought at present,'' the airline said. Goyal is likely to convert shares owned by its holding company into his personal stake to comply with foreign investment regulations, a government source had said.

Etihad which has posted profit for a second year in a row has been on an acquisition spree picking up stakes in Air Berlin, Air Seychelles, Aer Lingus and Virgin Australia over the last two years. It has also tied up with Air France-KLM and operates code share flights on European flights.