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Etihad could pay $330m for 24% of Jet

Abu Dhabi carrier has been eyeing a stake in an Indian airline for quite a while

Flying high
Image Credit: Bloomberg
Jet Airway flights prepare for take off in Mumbai. Some 150 million travellers pass through Indian airports every year, accordingto the International Air Transportation Association (IATA).
Gulf News

Dubai: Etihad Airways, the UAE national flag carrier is likely to buy a 24 per cent stake in Jet Airways for up to $330 million (Dh1.21 billion), according to media reports.

The announcement is expected to be made on Friday, in what would be the first such investment by a foreign carrier in an airline in India since rules were relaxed last year.

“The Gulf carrier could pay up to $330 million for a 24 per cent stake in Jet, country’s second-biggest carrier, a senior government source said earlier this month,” Economic Times reported on its website.

The government of India allowed foreign carriers to buy stakes of up to 49 per cent in local carriers in September 2012, to boost the sector.

“Etihad has been eyeing a stake in an Indian airline for quite a while and since the demise of Kingfisher, the landscape clarity meant that Jet Airways was always going to be a priority target for them,” Saj Ahmad, Chief Analyst at UK-based StrategicAero Research, told Gulf News.

“Not just because Jet Airways is a better run entity than state-run Air India, it also has a much lower costs and a more profitable international route network, alongside a sizeable domestic presence,” Ahmad says.

Some 150 million travellers pass through Indian airports every year, according to the International Air Transportation Association (IATA). “If Indians begin to travel with the same frequency as Americans, then the years ahead could see the market boom beyond the two billion mark,” IATA said in a report on the Indian aviation market in October.

“This will not happen quickly and is dependent on an expected increase in per capita GDP. Even so, by 2020 traffic at Indian airports is expected to reach 450 million, making it the third-largest aviation market in the world,” IATA said.

However, a multifaceted crisis has taken hold of the industry that threatens progress. Air India and Kingfisher Airlines, for example, are in critical condition. Airline losses approached $2 billion in the year ending March 2012 — on the back of a $3.5 billion loss over the previous three years.

The Centre for Asia-Pacific Aviation (CAPA) believes Indian airlines’ debt burden will soon reach $20 billion. “Indian banks and financial institutions are exposed to about half of this amount,” CAPA said.

Etihad officials remained tight-lipped about the deal. “Etihad Airways welcomes the Indian Government’s decision to allow foreign investment in Indian carriers. The Indian aviation industry offers tremendous potential, with significant passenger movement on domestic and international sectors,” said an e-mailed statement.

“Etihad Airways has identified equity investments in other airlines as an important evolution of its successful partnership strategy. Such investments will be made where Etihad Airways believes the commercial prospects are strong, where there are like-minded business philosophies, and where such commitment will be welcomed. If or when we do make further investments of this sort, we will announce them in line with regulatory and commercial requirements.”

Etihad, which is in its tenth year of operation, has already bought stakes in Airberlin, Air Seychelles, Aer Lingus and Virgin Australia — over the last 13 months — in a move to expand its global network of destinations.

“We are optimistic about the Indian aviation sector with the recent liberalisation. We are closely monitoring the situation for investment,” James Hogan, President and Chief Executive of Etihad Airways told Gulf News in a recent interview.

A section of the media had earlier said that Etihad was bidding for stakes in Kingfisher and Jet Airways.

“We are talking to both the airlines and right now doing due diligence. Once the time is right, we will make the announcement,” Hogan told Gulf News in December.

Ahmad said, the problem with India has been that although the country has a huge population, less than one per cent of that total use air transport so competition has resulted in both overcapacity, falling yields and weak fares and consequently, this cash injection by Etihad into Jet Airways will go a long way to strengthening their weakened balance sheet.

“It also stands to reason that GCC airlines like Etihad are able to cherry-pick their investment targets given that they do so from a position of strength. It would have been nigh on reckless if they had bizarrely opted to buy into a carrier like Kingfisher which is now not only grounded, but has also lost its operating licence with little prospect for either of those to be reinstated any time soon, if at all. It would have been outrageously stupid.” Ahmad says.

Jet Airways currently operates a fleet of 100 aircraft, serving 73 destinations including Abu Dhabi, Bahrain, Dammam, Doha, Dubai, Jeddah, Kuwait, Muscat, Riyadh and Sharjah in the GCC.