The
infusion of $379 million by Abu Dhabi-based Etihad Airways in Jet Airways, India's largest private airline
, is good news on multiple counts. The proposed deal is a tangible benefit of
the government's policy reform announced last September easing ownership rules
to allow foreign carriers to own up to 49% in local airlines.
It signals an overall improvement in the country's investment climate.
Jet AirwaysBSE 12.79 % will sell 27.26 million shares in a preferential offer of new shares to Etihad at Rs 754.74 per share. This represents a 32% premium to the company's closing price on Tuesday, higher than the reported 5.5% premium Singapore Airlines paid to raise its stake in Virgin Australia Holdings to 19.9 % in another transaction on Wednesday.
The newly-issued shares will represent 24% of Jet's expanded share capital. Jet can use the money to retire a part of its debt that aggregated to around $2.1 billion at the end of December, thereby improving its finances.
The present tie-up comes in the wake of a joint venture between AirAsia and the Tatas for a new lowcost airline that was proposed and has received the government's permission. Greater investment in Indian civil aviation will mean good news for passengers. Foreign carriers can offer expertise, connectivity and convenience, besides funds.
At the same time, these developments mean more intense competition among Indian carriers, at a time when they show some signs of emerging from the red. The worst affected would be Air India, whose ridiculously high debt-equity ratio virtually cripples its financial performance .
A way has to be found to convert debt into equity and put the airline under professional management, insulated from the owner, the government. Another issue is accessing new capital. Banks, bitten by KingfisherBSE 1.46 %, would be twice shy. Indigo might be able to go public successfully . Others would need to engineer new sources. A little help from the government will not be amiss.
It signals an overall improvement in the country's investment climate.
Jet AirwaysBSE 12.79 % will sell 27.26 million shares in a preferential offer of new shares to Etihad at Rs 754.74 per share. This represents a 32% premium to the company's closing price on Tuesday, higher than the reported 5.5% premium Singapore Airlines paid to raise its stake in Virgin Australia Holdings to 19.9 % in another transaction on Wednesday.
The newly-issued shares will represent 24% of Jet's expanded share capital. Jet can use the money to retire a part of its debt that aggregated to around $2.1 billion at the end of December, thereby improving its finances.
The present tie-up comes in the wake of a joint venture between AirAsia and the Tatas for a new lowcost airline that was proposed and has received the government's permission. Greater investment in Indian civil aviation will mean good news for passengers. Foreign carriers can offer expertise, connectivity and convenience, besides funds.
At the same time, these developments mean more intense competition among Indian carriers, at a time when they show some signs of emerging from the red. The worst affected would be Air India, whose ridiculously high debt-equity ratio virtually cripples its financial performance .
A way has to be found to convert debt into equity and put the airline under professional management, insulated from the owner, the government. Another issue is accessing new capital. Banks, bitten by KingfisherBSE 1.46 %, would be twice shy. Indigo might be able to go public successfully . Others would need to engineer new sources. A little help from the government will not be amiss.
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