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Corporate Nov 26, 2012

Deal with Etihad: what is at stake for Jet Airways

By Firstbiz Editors

The buzz about a likely deal between Jet Airways and Abu Dhabi-based airline Etihad Airways just got louder.

According to a report in VC Circle, Etihad is set to pick up 24 percent stake in Jet Airways at $400 million, a huge premium to its market value.

The report said said Etihad valued Jet Airways at $1.7 billion or Rs 9,438 crore.

Jet's total market value as of market close on Friday was Rs 4,366 crore, a Times of India report said.

Shares of Jet rose over 10 percent on media reports of the deal, a Reuters report said quoting dealers.Reuters

Shares of Jet rose over 10 percent on media reports of the deal, a Reuters report said quoting dealers.

The stock had gained 50.6 percent in November as of Friday's close after India said it is open to further reforms to lure overseas investors into its airlines, Reuters report said.

The ToI report quotes a civil aviation ministry official confirming the deal.

He has said the ministry was aware that the deal was progressing but expected that it will take a couple of months more for the deal to fructify.

This is very likely, given the eroding market share of Jet in India. The airline has seen market share plummet to 18 percent in October from 22 percent in February this year. Its seat factor of 67.5 percent in October is the lowest among all scheduled carriers, an earlier Firstpost article said.

So for the deal to happen, Jet will have to convince Etihad of its ability to fend off its rivals, especially Indigo.

According to the ToI report, for both the companies the deal is strategic and points to a long-term relationship. That is why Etihad is willing to pay a huge premium, an aviation expert has been quoted as saying.

The deal will definitely result in a dilution of Chairman Naresh Goyal's stake in Jet Airways by 15-20 percent. At present, he holds 80 percent in the airline through a company called Tail Winds, which is registered in the Isle of Man.

The deal will also help the Indian company meet its funding requirement.

Jet's multiple attempts to raise money abroad through the Qualified Institutional Placement (QIP) route have been rejected by the Foreign Investment Promotion Board in the past precisely because of the breach of the earlier FDI policy.

The earlier policy had restricted foreign ownership in Indian airlines at 49 percent, which Jet Airways was violating.

One more issue that Jet will have to deal with is its ambition to enter the Star Alliance.

"The cold vibes between Gulf-based carriers and Star Alliance (which is a 27 airline grouping) has been well known," an earlier Firstpost article had said quoting industry sources.

by Firstbiz Editors

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