Etihad Looking to Sell Stake in Jet Airways

Things are unraveling for Jet Airways fast now. After missed debt obligations, aircraft grounding, months of negotiations it appears like Etihad is pulling the plug on its investment. While this is not confirmed, multiple news sources are reporting this.

Background

In April 2013, Etihad agreed to invest $600 million into Jet Airways in a highly complex transaction. The deal was structured as below

• Purchased 24% stake worth $379 million valuing Jet Airways at Rs. 755 / share
• Acquired 51% stake in Jetprivilege (Jet Airways frequent flyer program) for $150 million
• Paid $70 million to purchase Jet Airways’ three slots at Heathrow airport

There were several non-monetary aspects as well. Etihad had guaranteed some of Jet Airways debt. It gained some bilateral rights to fly to/from Abu Dhabi to several Indian cities. Moreover, Jet Airways was inclined to increase service to Abu Dhabi to feed into Etihad’s global network.

Back then, Jet Airways was India’s largest airline and had no competition in the full-service segment apart from the state-owned Air India.

This was one of the largest investment by Etihad and happened in the hay-day of Hogan era. And it all seemed great – India was a highly under-penetrated market with huge potential.

Present Situation

In 2012, Jet Airways and Indigo were neck-to-neck in market share. Fast forward to 2018 and it is a completely different story. Backed by a very capable CEO, ruthless expansion and great financial and operational leverage, Indigo blew away the competition. In 2018, Indigo’s domestic market share reached 42% which was equal to all the other private carriers combined.

This was even before Jet Airways started defaulting on its debt and grounding the aircraft. It dialed Etihad for help but the latter was facing problems of its own. Investing more money into Jet Airways was always going to be challenging for Etihad. There were several reasons:

• Multiple questionable investments in the past
• Requirement for Indian and Abu Dhabi government to invest in Jet Airways through NIIF
• Regulatory environment in India
• Reluctance of Naresh Goyal to step down and cede control

I had discussed these issues extensively in my previous post. You can find it here.

Is Etihad Exiting?

Both parties (and the lenders) have always maintained that negotiations are underway. However, there have been three clear signals so far and it is not looking good.

Etihad did not participate in the shareholder’s vote

On February 23, 2019, the shareholders of Jet Airways met to approve debt restructuring plan to save the airline. Etihad, the largest shareholder after Naresh Goyal, abstained. While it did not vote against the resolution, the abstinence was a clear indication that not all is well.

Jet Airways cancels flights to Abu Dhabi

On March 17, 2019, Jet Airways cancelled all its flights to Abu Dhabi. This was, at least in part, down to the airline having no money to operate. However, the other international operations were reduced not stopped altogether. I had covered this in a previous post which you can find here.

News Updates

On March 19, 2019 several media outlets reported exit of Etihad from Jet Airways. Further Jet Airways’ stock tanked 9% in a day! This is the gist of what is being reported

• Etihad is looking to sell its stake to Jet Airways’ lender at Rs. 150 / share (80% lower than entry price)
• It also wants to sell its stake in Jetprivilege
• Jet Airways has a large debt repayment coming up in end of March
• Indian government and aviation regulator and monitoring the crisis

Each of these incidents separately may not mean much. However, all of them happening within a month makes it hard to ignore.

Conclusion

I love Jet Airways and have some great memories of the airline. I have flown thousands of miles on it including my first ever trip in business-class. The soft product is always an A or A+. I would be happy if it survives the current situation and emerges as a viable airline.