March 20, 2018 / 7:17 AM / in 10 months

BREAKINGVIEWS-Mile-high stake swap could feed Air India bid

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

By Una Galani

MUMBAI, March 20 (Reuters Breakingviews) - Foreign airlines can fuel homegrown bids for Air India. Naresh Goyal’s Jet Airways is eyeing a bid for the soon-to-be privatised national carrier, according to a Press Trust of India report published in Mint newspaper. That would consolidate the country’s long-haul market, but Jet would need serious financial help. Abu Dhabi’s Etihad may have to make room for a new large strategic investor.

The $1.2 billion Jet is one of three full-service carriers that bundle extras like meals and entertainment into ticket prices. It flies against both Air India and Vistara, a joint venture between Singapore Airlines and Indian conglomerate Tata. A deal led by either would reduce the number of competitors to two, a more sustainable market structure.

Jet is already highly leveraged, a legacy from its decision to offer long-haul routes before there was ample demand. Competition from budget rivals has hurt too. Despite cost cutting, net debt remains around 7 times reported EBITDA. Recapitalisation is critical, says Kapil Kaul of the Centre for Aviation, a consultancy.

A bid in partnership with Air France-KLM and U.S.-based Delta Airlines, as mooted by Press Trust, would spread the burden. However, Air France already has a cooperation agreement with Jet, so it would stand to gain little from such a deal. As for Delta, Chief Executive Edward Bastian says the airline is not planning such an investment.

But there is a decent case for Etihad to sell its 24 percent stake in Jet. Abu Dhabi’s flagship airline appears to be in retrenchment and has began to cut ties or sell some of its minority stakes in struggling rival airlines. Although the investment in Jet still holds value for the tiny emirate, connecting its Gulf airport to a population of 1.3 billion potential travellers, Jet’s new alliances significantly erode that advantage.

Etihad would have to sell at a loss, based on Jet’s current share price. But with a foreign ownership cap of 49 percent for Indian airlines, a sale or serious dilution of the overseas shareholder may be a pre-requisite for Goyal to bid for Air India.

On Twitter


- A consortium of Jet Airways, Air France-KLM, and Delta Airlines has expressed interest in the sale of Air India, according to a Press Trust of India article citing unnamed sources. The PTI article was published by Mint newspaper on March 11.

- The possible bid comes around four months after Jet Airways enhanced a cooperation agreement with Air France-KLM, the Press Trust article said, noting that Jet Airways Chief Executive Vinay Dube had a decade-long career at Delta Air Lines before joining the Indian carrier last year.

- On March 13, Delta Chief Executive Edward Bastian told analysts that the carrier was not planning to invest in Air India.

- New Delhi wants to complete the privatisation of Air India this year. Mint earlier reported that the airline will be split and offered to potential buyers in four parts, comprising the core airline business, regional arm, ground handling, and engineering operations.

- The core airline business would comprise of Air India and Air India Express.

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


Editing by Pete Sweeney and Sharon Lam

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below