BREAKINGVIEWS-Etihad bets on India in pricey Jet Airways deal

Wed Apr 24, 2013 9:32pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

DUBAI, April 24 (Reuters Breakingviews) - Etihad Airways is betting big on India. The ambitious UAE carrier is throwing indebted Jet Airways, the largest publicly traded airline on the subcontinent, a $600 million lifeline. The deal buys Etihad a 24 percent stake, control of Jet's loyalty programme, and landing slots at Heathrow. That makes it the first company to take advantage of newly relaxed foreign ownership rules in India, as it seeks to tap one of the fastest growing aviation markets in the world.

Jet is one of India's top airlines but the price paid still looks a bit generous. Etihad is paying $380 million or a 32 percent premium for its minority interest. That's on top of a 63 percent rise in the share price since mid-September when reports of a deal between the pair first surfaced. That type of premium is usually justified by a change of control. In this case, Jet founder Naresh Goyal will remain non-executive chairman, and retain a 51 percent stake.

Goyal has obviously driven a hard bargain even though his company badly needed the funds. The airline has to repay $400 million each year. At the end of December, Jet had $134 million of cash on total debt of $2.2 billion and had already been forced to enter sale and lease back agreements ahead of the tie-up. With Etihad, it will have a deep-pocketed partner.

The premium reflects the importance of India to Etihad. Over the last two years, the airline has snapped up minority stakes in Air Berlin, Virgin Australia, Aer Lingus and Air Seychelles but this is its biggest and most important bet. Only three hours away by air, India's population is over 150 times bigger than that of the UAE and can provide traffic for Eithad's routes to the U.S., Europe, Africa and the Middle East.

The success of Etihad's bet will depend on the capacity of the two strong characters at the head of each airline to stay on friendly terms, in order to navigate difficult political waters. Goyal long opposed the entrance of foreign airlines into India. And Etihad Chief Executive James Hogan might want a bigger say in how the Indian carrier is run after handing over cash worth two thirds of Jet's market value. Working together, the pair could be a powerful partnership. If they ever fall out, it would be a disaster.

CONTEXT NEWS

- Abu Dhabi-based carrier Etihad Airways has agreed to buy a 24 percent stake in India's Jet Airways as part of a deal worth $600 million. Etihad will pay $379 million to buy 27.3 million shares at 754.74 rupees each or a 32 percent premium to the Indian carrier's last closing share price.

- The airline will buy a majority stake in Jet's frequent flyer programme for $150 million. The deal also includes the sale and lease back of three pairs of Jet's London Heathrow slots for $70 million that was first announced in February.

- Jet founder Naresh Goyal will own 51 percent of the airline after the deal and remain non-executive chairman. India relaxed foreign ownership rules in September allowing foreign carriers to buy up to 49 percent of local ones.

- The deal, which is subject to regulatory and shareholder approval, will establish Abu Dhabi as a Gulf gateway for Jet's flights to the United States, Europe, Africa and the Middle East.

- In the last two years, Etihad has purchased minority stakes in Air Berlin, Virgin Australia, Aer Lingus, and Air Seychelles.

- Reuters: India's Jet Airways selling stake to Etihad for $379 mln [ID: nL3N0DBGGJ]

- Reuters: Etihad confirms takes 24 pct stake in Jet Airways for $379 mln

- For previous columns by the author, Reuters customers can click on

(Editing by Pierre Briançon and Sarah Bailey)

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