Strategic advantages and imperatives have driven Etihad
to pay Jet the 35.1 per cent premium to market price for a 24 per cent stake in
India’s No 2 carrier. India is considered among the big growth markets
notwithstanding the recent slump in domestic passenger traffic in the country.
Growth in domestic and international traffic in and out of India is expected to
be far higher than in Etihad’s home turf. The stake buy in Jet allows Etihad to
get some of this action. In particular, Jet could provide significant feeder
traffic from India to Etihad’s hub, Abu Dhabi, for travel beyond to
destinations such as the US. In this context, the ongoing talks over the
bilateral air services agreement between India and the UAE assume significance.
The proposal to increase the seat allocation between India and Abu Dhabi from
close to 14,000 seats a week to over 42,000 seats, if approved, will provide a
shot-in-the-arm for the Etihad-Jet combine. Etihad would surely have factored
in this significant market expansion when deciding to invest in Jet Airways.
But the proposal is facing opposition from private airport operators in India that
have made big investments. They contend that West Asian hubs such as Dubai and
Abu Dhabi channelling traffic from India will impede the chances of an Indian
aviation hub emerging.
Etihad, though, is equipped to risk the gamble. Like some
of its West Asian counterparts, say, Emirates Airlines, Etihad is financially
in a sweet spot. Flush with cash which it needs to deploy effectively, Etihad
has been on a shopping spree and has picked stakes in Air Seychelles, Aer
Lingus and Virgin Australia. The investment in Jet seems part of the pattern.
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