Rs 2,054-cr deal struck at 31% premium over Jet's current
stock price to bring down
After eight months of hard
bargaining, the Naresh Goyal-promoted Jet Airways on Wednesday sealed a deal
with Abu Dhabi-based Etihad Airways, under which the latter will pick a 24 per
cent stake in the country’s second-largest domestic airline for Rs 2,054 crore
($379 million). Besides, under a wider overall commitment, Etihad will inject
another Rs 1,192 crore ($220 million) into Jet.After AirAsia’s tie-up with Tata
Sons earlier this year, this is the second major deal in the aviation space
since the government last year allowed foreign airline companies to hold up to
49 per cent stake in Indian ones.
Wednesday’s deal is expected to help Jet, which had made a Rs 1,236-crore loss in 2011-12 and has around Rs 12,000 crore of debt on its books, expand its global footprint and overcome financial difficulties.For Etihad, which has, over the years, followed a strategy of alliances and stake buys for quick growth, the move will help gain a larger market share in India for the international skies (see chart).
Goyal owns 80 per cent in the airline, which he founded in 1993. Of this, 79.99 per cent is owned through the Isle of Man-registered Tail Winds Ltd. After the deal, his shareholding in the airline will come down to 51 per cent. On Wednesday, the airline’s board had decided to allot 27 million preference shares to Etihad at Rs 754.73 apiece — a premium of 31 per cent on the airline’s current stock price of Rs 573.85.
In a notification to stock exchanges, the airline said its board had approved the signing of an investment agreement with Etihad and would seek shareholders’ approval at an extraordinary general meeting.
It is learnt Etihad would get three seats, including the position of vice-chairman, on the Jet board. At present, there are seven directors on the board. Besides bringing in fresh equity, Etihad would also provide guarantees on loans that Jet plans to avail of from local or foreign banks.
In a joint press statement, Etihad said its wider overall commitment to Jet included the injection of another Rs 1,192 crore ($220 million) to create and strengthen a wide-ranging partnership.
As part of this, Rs 813 crore ($150 million) would be invested by Etihad by way of a majority equity investment in Jet’s frequent-flyer programme, ‘Jet Privilege’ — subject to appropriate regulatory and corporate approvals and final commercial agreements expected to be completed within six months. The two together have 4.4 million frequent flyers.
Etihad has already struck a deal to pay Rs 379 crore ($70 million) to buy Jet’s three pairs of slots at Heathrow Airport through a sale-and-lease-back agreement announced on February 27. Jet Airways continues to operate flights to London utilising these slots.
Under the strategic partnership, the airlines would gradually expand existing operations and introduce new routes between India and Abu Dhabi, providing a wider choice to the travelling public. They would combine their network of 140 destinations, with Jet establishing a Gulf gateway in Abu Dhabi and expanding its reach through Etihad’s growing global network.
Also, passengers from 23 Indian cities would benefit from direct connections to international destinations. New flights from Jet’s home hubs and metro airports would further strengthen its current operations from these airports.
Etihad CEO James Hogan said the alliance was expected to bring immediate revenue growth and cost synergy opportunities, with initial estimates of a contribution of $700 million for both airlines over the next five years. “The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.”
“For Jet, this transaction further strengthens its balance sheet and, more importantly, underpins future revenue streams that will accelerate our return to sustainable profitability and liquidity,” Goyal said.
The airline would explore joint purchasing opportunities for fuel, spare parts, equipment and catering supplies, as well as external services, such as insurance and technology support. Other areas of cooperation would include joint training of pilots, cabin crew and engineers, as well as maintenance of common aircraft types and consolidation of guest loyalty programmes. A joint project management office would be set up to ensure delivery of all synergy benefits to both parties.
Wednesday’s deal is expected to help Jet, which had made a Rs 1,236-crore loss in 2011-12 and has around Rs 12,000 crore of debt on its books, expand its global footprint and overcome financial difficulties.For Etihad, which has, over the years, followed a strategy of alliances and stake buys for quick growth, the move will help gain a larger market share in India for the international skies (see chart).
Goyal owns 80 per cent in the airline, which he founded in 1993. Of this, 79.99 per cent is owned through the Isle of Man-registered Tail Winds Ltd. After the deal, his shareholding in the airline will come down to 51 per cent. On Wednesday, the airline’s board had decided to allot 27 million preference shares to Etihad at Rs 754.73 apiece — a premium of 31 per cent on the airline’s current stock price of Rs 573.85.
In a notification to stock exchanges, the airline said its board had approved the signing of an investment agreement with Etihad and would seek shareholders’ approval at an extraordinary general meeting.
It is learnt Etihad would get three seats, including the position of vice-chairman, on the Jet board. At present, there are seven directors on the board. Besides bringing in fresh equity, Etihad would also provide guarantees on loans that Jet plans to avail of from local or foreign banks.
In a joint press statement, Etihad said its wider overall commitment to Jet included the injection of another Rs 1,192 crore ($220 million) to create and strengthen a wide-ranging partnership.
As part of this, Rs 813 crore ($150 million) would be invested by Etihad by way of a majority equity investment in Jet’s frequent-flyer programme, ‘Jet Privilege’ — subject to appropriate regulatory and corporate approvals and final commercial agreements expected to be completed within six months. The two together have 4.4 million frequent flyers.
Etihad has already struck a deal to pay Rs 379 crore ($70 million) to buy Jet’s three pairs of slots at Heathrow Airport through a sale-and-lease-back agreement announced on February 27. Jet Airways continues to operate flights to London utilising these slots.
Under the strategic partnership, the airlines would gradually expand existing operations and introduce new routes between India and Abu Dhabi, providing a wider choice to the travelling public. They would combine their network of 140 destinations, with Jet establishing a Gulf gateway in Abu Dhabi and expanding its reach through Etihad’s growing global network.
Also, passengers from 23 Indian cities would benefit from direct connections to international destinations. New flights from Jet’s home hubs and metro airports would further strengthen its current operations from these airports.
Etihad CEO James Hogan said the alliance was expected to bring immediate revenue growth and cost synergy opportunities, with initial estimates of a contribution of $700 million for both airlines over the next five years. “The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.”
“For Jet, this transaction further strengthens its balance sheet and, more importantly, underpins future revenue streams that will accelerate our return to sustainable profitability and liquidity,” Goyal said.
The airline would explore joint purchasing opportunities for fuel, spare parts, equipment and catering supplies, as well as external services, such as insurance and technology support. Other areas of cooperation would include joint training of pilots, cabin crew and engineers, as well as maintenance of common aircraft types and consolidation of guest loyalty programmes. A joint project management office would be set up to ensure delivery of all synergy benefits to both parties.
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