(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
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.
- 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
- In the last two years, Etihad has purchased minority
stakes in Air Berlin, Virgin Australia, Aer Lingus, and Air
- 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
(Editing by Pierre Briançon and Sarah Bailey)