Source: Business Standards, Nov 21, 2013
Jet Airways on Wednesday concluded the sale of 24 per cent equity stake in the airline to Etihad Airways for Rs 2,057 crore. The share allotment took place seven months after Jet Chairman Naresh Goyal and Etihad Chief Executive James Hogan signed a deal in this regard in Abu Dhabi.
Hogan and Etihad’s Chief Financial Officer James Rigney have been appointed additional directors on the Jet Airways board. Board member Victoriano P Dungca has stepped down.
Jet has also approved the spin-off of its frequent flyer programme into a separate subsidiary. Etihad will hold 50.5 per cent in the frequent flyer programme and invest $150 million.
The deal had missed closure deadlines twice. It had also courted controversy, following the simultaneous increase in traffic rights to Abu Dhabi. A clearance by the Competition Commission of India last week paved the way for the closure of the deal.
On Wednesday, the Jet Airways board approved the preferential issue of 27.26 million equity shares to Etihad at Rs 754 a share (a premium of Rs 744 a share). After the transaction, Goyal’s stake in the airline stands at 51 per cent. Public and institutional investors hold 25 per cent stake. Etihad, too, has been treated as a public shareholder. Following the investment, Jet’s share capital has increased from Rs 86 crore to Rs 113 crore (the premium amount is transferred to the reserve).
Jet Airways’ net worth has been eroded due to losses in the past several quarters. Fresh equity infusion would help boost the balance sheet and aid debt repayment.
Through the last two months, Etihad has been driving changes in Jet Airways. The Indian airline has seen several high-profile exits, including those of its chief executive Nikos Kardassis, its investor relations head K G Vishwanath and two key finance executives.
The deal will see Jet Airways integrate its network with Etihad’s. The airlines would also work together in areas such as sales, marketing, ground handling and cargo. While Etihad has already announced doubling of services from Abu Dhabi to Delhi and Mumbai, Jet is yet to announce additional flights to Abu Dhabi.
In April, India and Abu Dhabi had signed an air services agreement, allowing 50,000 seats a week to carriers from both countries through the next three years.
The commercial cooperation agreement signed between two airlines states Jet will use Abu Dhabi as a hub for services to and from “exclusive territories” (Africa, North and South America, excluding Canada, and the UAE). Jet has also agreed to transition all its current services to and from Dubai and Sharjah to Abu Dhabi, when this becomes economically viable. Under the agreement, Jet will also refrain from entering into code-share agreements with other airlines that would lead to bypassing Abu Dhabi.
The Competition Commission of India, which cleared the deal last week, said using Abu Dhabi as an exclusive hub and withdrawal from certain code-share routes wouldn’t lead to concentration of Jet-Etihad’s market share.
