Etihad Airways PJSC’s purchase of a 24 percent stake in Jet Airways (India) Ltd. (JETIN) boosts its position in a high-growth market that’s being targeted by new entrants including AirAsia Bhd. (AIRA) as the state invites foreign investment.
Abu Dhabi-based Etihad, seeking to build the sheikdom into an intercontinental transfer hub, will purchase 27.26 million Jet shares at a cost of 20.6 billion rupees ($379 million), or 754.74 rupees apiece, 32 percent higher than the previous close. Shares of the Indian carrier jumped the most in almost two months in Mumbai trading today.
Indian carriers are seeking equity injections after Prime Minister Manmohan Singh’s government agreed to allow overseas carriers to buy holdings of as much as 49 percent. AirAsia, the region’s biggest budget operator, last month formed a venture with Mumbai-based Tata Group to set up a local low-fare airline.
“This acquisition will give a tremendous amount of competitive advantage to Etihad,” said Kapil Kaul, head of the Indian unit of the CAPA Centre for Aviation. “They need to feed their hub, and there can’t be any better market than India, two or three hours away with 1.3 billion people and a growing economy. Jet would use the money to deleverage. It’s a win- win.”
Jet Air rose 11 percent to 634.80 rupees at close of trading in Mumbai, after earlier gaining as much as 20 percent. The market was closed yesterday for a public holiday when the announcement was made. SpiceJet Ltd., India’s only listed discount carrier, surged 18 percent.
AirAsia won approval in March from India’s Foreign Investment Promotion Board to hold a 49 percent stake in a new airline venture with Tata Sons and Telestra Tradeplace Inc.
The Malaysian company aims to start Indian operations in September, with the venture operating out of Chennai in the south of the country.
Some seats could be offered for free, a company official with knowledge of the matter said last month, a strategy that could undermine a recovery at Jet, SpiceJet and other Indian carriers which are raising fares after cash-strapped Kingfisher Airlines Ltd. (KAIR) ended operations in October.
Etihad’s Jet deal, which targets a market where travel is forecast to triple by 2021, is the latest in a series of minority investments by the third-biggest Gulf carrier.
The state-owned company has a 29 percent holding in Air Berlin Plc (AB1) and stakes in Air Seychelles Ltd., Virgin Australia Holdings Ltd. (VAH) and Aer Lingus Group Plc (AERL), and is in talks that could lead it to buy 49 percent of Serbia’s JAT Airways.
Jet, India’s biggest publicly traded airline, had 116 aircraft as of Sept. 30, including Boeing Co. (BA:US) and Airbus SAS models, and is selling and leasing back planes to free up cash and repay $600 million of its $2.3 billion debt by March 31.
“The Indian market is fundamental to our business model of organic growth, partnerships and equity investments,” Etihad Chief Executive Officer James Hogan said in a statement. The deal will deliver immediate sales growth, which with potential savings will deliver a contribution of “several hundred million dollars for both airlines over the next five years,” he said.
Indian airlines need cash to fund expansion, cut debt and improve liquidity, CAPA’s Kaul said, adding that Jet is “an outstanding” business which should emerge as a more professional company under the guidance of Etihad.
Etihad said the deal lifts its commitment to Jet to $600 million, including the purchase of three pairs of slots at London Heathrow airport for $70 million in February and a $150 million investment in a majority stake in the Jet Privilege frequent-flier program. Etihad will also provide a five-year loan of $400 million to Jet, according to Bloomberg TV India.
Jet, which serves 125 locations, including Abu Dhabi, Bahrain, Doha, Dubai, Jeddah, Kuwait and Muscat in the Gulf region, agreed in December to expand a code-share pact with Etihad, which operates services to nine Indian locations.
Yesterday’s transaction will allow Jet passengers from 23 Indian cities to gain access to an expanded global network, Etihad said. The Indian carrier will enhance services from Delhi and Mumbai and introduce flights from Hyderabad and Bangalore.
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