India Markets open in 6 hrs 43 mins

Etihad holds first class ticket for Jet’s tailspin

Reuters

Naresh Goyal could be ejected from the cockpit. The founder of Jet Airways is edging closer to losing control of the Indian company after it revealed on Tuesday that it had missed a payment to lenders. They are unlikely to extend more credit to the carrier until it secures a cash infusion. Its second largest investor, Abu Dhabi s Etihad Airways, could be setting the course.

Jet is struggling to turn things around as it grapples with cutthroat competition. Rivals with lower operating costs are keeping fares low in one of the world s fastest growing aviation markets. After another 6 percent fall in the shares on Wednesday, Jet s market value has plunged 70 percent in the past year, leaving it worth less than $460 million.

Etihad has been on board for the awful ride. In 2013, it injected about $600 million for a 24 percent stake and control of the airline s frequent flyer programme. Goyal is now trying to monetise Jet Privilege and sell aircraft in a bid to raise money. Jet shares are trading at a third of the price Etihad paid.

In some ways, Jet looks as bad as other investments made by the state-owned Abu Dhabi carrier as part of a failed strategy backing second-tier European airlines. That ended with the bankruptcies of Air Berlin and Italy s Alitalia. It is one reason that Etihad might think twice about rescuing Jet with loan guarantees or a cash infusion.

Yet Etihad s intentions for Jet always seemed different. India is a large neighbouring market that can provide a strong feed of passengers to the Gulf carrier s long-haul hub. It might be worthwhile keeping a firm grip on Jet if Etihad can take its stake up to the maximum permitted 49 percent and remove Goyal, the influential chairman, from positions of power.

If Etihad doesn t act, it must consider the possibility that rival Singapore Airlines could step in as part of a deal led by Tata Sons. The Indian conglomerate wants to expand in aviation and has held preliminary talks with Jet. For now, though, Etihad holds the first class ticket for Jet s tailspin.

On Twitter https://twitter.com/ugalani

CONTEXT NEWS

– India s Jet Airways said on Jan. 2 it had delayed payment to a group of banks due to temporary cash flow mismatch , adding that it was is in talks with the lenders. The company s shares fell 6 percent.
– Jet and its second-largest shareholder, Etihad Airways, were in talks with bankers on a rescue deal that might involve the Abu Dhabi-based airline increasing its stake from 24 percent, Reuters reported in early December.
– On an earnings conference call on Jan. 1, Jet Deputy Chief Executive and Chief Financial Officer Amit Agarwal said the company was exploring the sale of aircrafts, monetisation of its loyalty programme and a fresh liquidity infusion.
– Jet has lost almost 70 percent of its market value over the past year, leaving it at about 31.9 billion rupees ($459 million).