Is Etihad Bidding for Jet Airways?

Things continue to unravel for the troubled Jet Airways. The airline has three large shareholders now – Lenders (51%), Etihad (12%) and Naresh Goyal (25%). The largest shareholder does not want to run the airline. Therefore, it had invited bids to sell its stake. The deadline of April 12 has passed. Reportedly, Etihad has put in a bid as well.

Background

In April 2013, Etihad agreed to invest $600 million (24% stake) into Jet Airways in a highly complex transaction. You can read more details here. The investment has not turned out well yet due to a number of reasons – price elasticity in India, emergence of Indigo Airlines, high fuel prices etc.

Jet Airways in under severe financial duress and is operating about 10% of its original fleet. Further, most international operations have been cancelled.

At present, Jet Airways does not have funds to operate and also to meet its debt obligations. Due to its inability of pay back, the lenders converted their debt into equity and seized control.

Before this, there was a prolonged process to raise equity. Etihad, Naresh Goyal and a Private Equity fund were in talks to invest but it never materialized. It is reported that Etihad had some concerns over additional investment. You can read this post if you want to understand this further.

Current Situation

The situation is not ideal for any of the three large shareholders and the public shareholders of Jet Airways.

Lenders do not want to run the airline. Neither would they want to invest more equity into the company.

Etihad’s 12% stake will not come with management control or significant privileges in the board of directors. It is, at best, a financial investment.

Naresh Goyal, the person who wants to run the airline, will not be able to under the current situation.

To resolve this impasse, the lenders solicited bids for Jet Airways. This was for a controlling stake ranging between 31%-75%. It is unclear what the exact terms and conditions were. However, it is reported that as many as 7 bids were received. As per some news articles, the bidders are – Etihad, Naresh Goyal, TPG, Indigo Partners (not Indigo Airlines), Redcliffe & Thinkequity, and 2 individual of which one is a former Jet Airways employee.

My View

I had mentioned in my previous post that the last word is not out yet. I continue to believe that a resolution is some time away.

However, it is interesting to note that Etihad and Naresh Goyal have put in separate bids. I think this should spell the end of their 5-year partnership.

I am curious to know if Naresh Goyal has a partner supporting his bid.

Further, it appears that none of the other Indian airlines (Vistara, SpiceJet, Indigo, GoAir) or Indian business houses have put in bids.

I am also of the view that the investment terms offered by private equity players will not be amenable to the lenders of Jet Airways. It is likely that they would have to take a significant impairment on their exposure. Given most of the lenders are owned by the Indian government, there would be ramifications particularly with ongoing parliamentary elections.

Or perhaps, there will be a white knight like Ajay Singh.