Etihad and Jet Airways – What is going on?

It is no news that Jet Airways has been struggling for months. Debts are piling up, salaries are not being paid, and planes are being grounded.

Amidst all the struggle, there was a ray of hope. Or some clarity at least.

Jet Airways and its lenders agreed to restructure the debt and convert part of it to shares in the company. A funding gap of INR 85 billion ($ 1.2 billion) was calculated. There were even talks of how much money each of the investor would put in – Etihad, Jet Airways founder Naresh Goyal, Lenders and NIIF – the newly minted sovereign wealth fund of India.

However, Etihad seems to be playing hardball. There was a shareholder’s meeting last week to approve the debt restructuring. Etihad, the largest shareholder after Mr. Goyal, abstained from voting. While it did not vote against the resolution, the abstinence is a clear indication that not all is well in the deal. Why?

X Times Bitten, X+1 Times Shy

I have lost count of the investments made by Etihad, so put any number you want here. Etihad had invested in Jet Airways at a price of INR 755 per share. Currently, Jet Airways trades at INR 231 per share i.e. a loss of 70% on original investment.

Obviously, Etihad needs to evaluate whether future funding could change the fortunes of Jet Airways.

The NIIF angle

NIIF or National Investment and Infrastructure Fund was launched with much fanfare in India. It was India’s answer to Canadian Pension Fund, GIC etc. NIIF has been very selective in investing its funds given the obvious scrutiny it would attract from Indian taxpayers. It is mandated to do infrastructure and long-term growth investments, not acquiring distressed assets as Jet Airways.

Why would NIIF invest to save Jet Airways – a private airline – but not Air India, India’s national carrier? If the recent mess about Rafale fighter aircraft is anything to go by, this could turn ugly in India.

Regulations in India

Abu Dhabi Investment Authority or ADIA also invested for 49% stake in one of the NIIF funds. Presumably, this fund would invest in Jet Airways. Given Etihad and ADIA have the same ownership, this would mean Etihad getting a greater influence on decision making at Jet Airways than what its 24% vote share suggests. Further, there are rumors that Mr. Goyal will be asked to cease control of the airline.

The stock market regulator, SEBI, may not take this very kindly. If the ownership of a company changes, it is bound to acquire shares from the public shareholders (open offer). This would mean additional outgo for Etihad (something it clearly is not comfortable with).

Conclusion

Jet Airways is my preferred airline for travel to and within India. The service levels are always A or A+ and the flight timings always seem to work for me. It would be sad to see it go. However, I have the feeling this round of funding, even if completed, will not be end of their troubles.

Update

And the reporter’s (or blogger’s) curse has struck! Only hours after this post, Etihad and Jet Airways have come up with a joint press statement. There are no details yet and it only reaffirms that discussions between Etihad, Mr. Goyal and other financial investors are underway. Still, the timing is significant, as it is clearly intended to quell media speculation regarding the fate of Jet Airways. You may find the press release here.