Talk of Etihad raising stake sends Jet stock soaring 19%; Naresh Goyal may cease to be promoter under the deal
Etihad Airways, the debt-ridden national carrier of UAE, is likely to raise its stake in India's financially struggling Jet Airways to 49% from 24% at present, according to industry sources.
Talk of the deal with Eithad moving forward sent the Jet stock price soaring as much as 19% on Monday.
The deal is likely to bring down the controlling stake of Jet promoter-chairman Naresh Goyal, which had become the hurdle for investors to pump in money in the airline.
Industry sources said that Goyal and his family, which owns 51% in the airline, will cease to be promoters, with son Nivaan Goyal likely to be given the status of non-executive director with no controlling powers.
Both Jet and Eithad declined to comment.
Mumbai-based Jet has been seeking funds from several investors, including Tata Sons, private equity investors and Etihad in order to make a turnaround. The airline's bankers during a meeting recently made it clear to the Jet management that they would recall the loans extended to the airline if they don't get a credible repayment proposal at the earliest. This will include a stake sale or getting a strategic investor on board. Recalling the loans would effectively mean that within a fixed date, Jet would have to repay the debt or face liquidation. SBI, which has a Rs 2,000 crore exposure to the airline, is the leading the consortium of banks in the negotiations with the airline. Troubled Jet will present a repayment plan to its lenders as early as this week.
Interestingly, analysts blame Etihad's business strategy for the financial losses of some of the airlines in which it holds equity, including Jet. The Gulf-based airline has been dependent upon its equity alliance partners, to a great extent, for feeding passenger traffic into its base in Abu Dhabi, often at the cost of their own expansion plans. Jet's importance for Etihad has been immense as being single-largest equity partner it accounted for nearly 50% of all partner seat capacity into Abu Dhabi in 2017. Jet has now entered partnership with Air France-KLM Royal Dutch-Delta Airlines, which it says has offered the airline an improved revenue stream, which can be enhanced with a right push.
Air Berlin, Alitalia, Air Serbia, Air Seychelles, Virgin Australia, Air Serbia, Darwin airline (Etihad regional) are the airlines, apart from Jet, in which Etihad has invested since 2011. While some of the investments have resulted in growth, few others like Air Berlin, Alitalia, Jet and Darwin airline have not been able to make a mark, analysts said. As a result, Etihad, which was among the largest carriers in the Gulf region, has lost $3.4 billion in the last over two years. Etihad recently cancelled some of its plane orders, cut some routes and jobs, as part of its restructuring plan, they said.
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