Jet Airways brings on board Etihad

After long weeks of negotiations, Jet Airways (India), India's second largest domestic carrier by passengers carried, announced on Wednesday that Etihad Airways had come on board as a partner. The Jet Airways board, on Wednesday, agreed to issue fresh shares in favour of the UAE-government owned carrier at Rs 754.74 per share for a total deal value of about $379 million or about Rs 2,050 crore

Etihad will have 24 per cent stake in the Indian carrier, promoted by Naresh Goyal, after the issue of fresh shares. Jet's decision is expected to cheer up its shares on Thursday. The markets were closed on Wednesday on account of Mahaveer Jayanthi.

The deal will come as a whiff of fresh air to India's struggling airline sector, and may pave way for more such partnerships. In Jet's case, the fresh equity will help it pare its liabilities which stood at Rs 12,800 crore as on March 31, 2012.

For Etihad, too, the deal perfectly fits into its strategy. It is not known to pick up a controlling stake in any airline overseas, but just a strategic stake. The UAE carrier has equity stakes in Air Berlin (29 per cent stake), Virgin Australia (10 per cent stake) and Air Seychelles (40 per cent stake). It also has code share deals with 34 other airlines globally, and these help it cover 325 destinations worldwide.

That the Jet-Etihad deal was on the cards became evident when, in the last week of February, the Abu Dhabi-headquartered airline bought three pairs of Jet's slots at Heathrow Airport in London for $70 million (about Rs 380 crore).

India is a promising aviation market for the UAE airline that started up in November 2003. Jet still carries a higher number of international traffic than Middle East carrier Emirates Airline. The latter beat Air India's international traffic volumes in 2011/12. Etihad will use the Jet network and services in India to feed transit travelers - those travelling beyond the Middle East to Europe, Africa and East America, and other regions - into its hub at Abu Dhabi. Jet currently uses Brussels as its international hub.

Etihad currently flies to nine cities in India - Ahmedabad, Bangalore, Chennai, Hyderabad, Kochi, Kozhikode, Mumbai, New Delhi and Thiruvananthapuram - and has been exerting pressure at its own level to triple the weekly seats between Abu Dhabi and India from 13,000 now. It wants to add new cities in India to its network. A Jet-Etihad deal might come at some cost to Air India in terms of loss of passengers and to large privately-run airports at Delhi, Mumbai, Hyderabad, and Bangalore, but smaller airports owned by the Airports Authority of India are surely likely to see higher aviation activities.   

In the October-December quarter, Jet reported a net profit of Rs 85 crore, clocking higher profit margins from its international operations at 22.4 per cent (versus 18.3 per cent in domestic operations). The airline, however, has been in a far healthier position now than it was a year ago.  The airline has consistently reported losses - the highest in financial year 2011/12 at Rs 1,420 crore.