Naresh Goyal may hand over Jet Airways' operational reins to Etihad: Report

Etihad Airways, which owns a 24% stake in the beleaguered Jet Airways, may soon end up doubling its ownership in exchange for a desperately-needed cash infusion into the airline. Although Jet Airways dismissed talks about getting financial support from the Gulf carrier as "speculative" in a regulatory filing last week, the latest buzz is that its founder-chairman Naresh Goyal prefers a deal with Etihad over the one being discussed with Tata Sons.

Sources aware of developments told The Economic Times that Goyal and his team met with a top management team from Etihad, headed by Group CEO Tony Douglas, last Sunday. This was followed by long meetings with Jet's management at Goyal's Dubai residence. The daily added that Goyal is willing to consider handing over the operational reins to the Etihad in exchange for a fresh cash infusion through equity and soft loans, without relinquishing his chairmanship.

The deal being hashed out is expected to see Etihad injecting new equity into the airline, holding as much as 49% in the expanded equity base, while Goyal is open to his stake getting diluted from the current 51% to as low as 15%, depending on the extent of the cash infusion.

The cash-strapped airline reported its third consecutive quarterly losses for the quarter ending September, and is currently scrambling for funds to tide over a liquidity crisis that resulted in delayed salaries as well as payments to some vendors.

Also Read: Suresh Prabhu rules out bailout possiblity for cash-strapped Jet Airways

Given that the other deal in the works - the possible takeover by Tata Sons - will require Goyal to cede complete control, the Etihad option appears a far more desirable proposition for him.

Media reports earlier this month suggested that Tata Sons was mulling a two-step deal, where Jet could merge with Tata SIA Airlines Ltd - the joint venture between Tatas and Singapore Airlines that's known by the brand name Vistara - through a share swap in the first phase, followed by Singapore Airlines buying out the Goyal family's entire 51% stake in the new combined entity. Tata Sons is the investment holding company of the $103-billion salt-to-software conglomerate.

However, although Tata Sons last week confirmed that the Group is in preliminary talks with Jet Airways, its board is in no hurry to seal the deal. In fact, some of the board members reportedly urged Chairman N. Chandrasekaran and his team to appoint external consultants to aid in the due diligence process and make it as comprehensive as possible amid concerns of a jump in the airline's liabilities. In the bargain, talks with Jet Airways have landed on the back-burner.

In any case, Etihad holds an edge over other potential investors in India's second-largest airline. Citing a source the daily added that the Gulf carrier has the right of first refusal in case Goyal looks at a sale of shares - a key lever that can make or upend any deal

Besides investing further in Jet Airways makes sense for Etihad and its Abu Dhabi principals for multiple reasons. To begin with, there's India's surging air passenger numbers.  Global airlines' body the International Air Transport Association (IATA) recently predicted that India will become the world's third largest aviation market around 2024, following China and the United States.

A source told the daily that any setback to Jet Airways will impact it directly in terms of a captive feed of passengers - currently around 11% of Etihad's passengers currently originate from India. Its arch rival, Emirates, flies about 18% of the passengers originating from India. Significantly, IATA expects India's annual passenger traffic to triple to 478 million by 2036, so Etihad would not want to drop the ball.

Furthermore, it has a point to prove after its much tom-tomed 'equity alliance' strategy backfired so spectacularly. The idea was to invest in a number of struggling foreign operators to help feed more traffic through Abu Dhabi and expand its international footprint, but the collapse of partners like Air Berlin and Italy's Alitalia resulted in huge losses for Etihad. Not bailing out Jet Airways now would mean its entire investment in terms of management and funding so far will also have been in vain.

(Edited by Sushmita Choudhury Agarwal)

Also Read: Jet Airways in talks with many investors to secure funds, says CEO Vinay Dube

Also listen: Suresh Prabhu rules out bailout possiblity for cash-strapped Jet Airways