Jet, SpiceJet in talks with Etihad, AirAsia

November 27, 2012 - 12:24:42 am



A Jet Airways aircraft takes off from the Chhatrapati Shivaji international airport in Mumbai yesterday.

NEW DELHI: Struggling Indian carriers Jet Airways and SpiceJet are in talks with Abu Dhabi’s Etihad Airways and Malaysia’s AirAsia Bhd to sell minority stakes, a senior government official with direct knowledge of the talks said.

Jet shares rose about 14.3 percent and SpiceJet jumped as much as 19.2 percent yesterday, continuing their rallies from last week amid speculation that they may become the first Indian carriers to secure foreign investment.

India changed its rules in September to allow foreign carriers to buy stakes of up to 49 percent in local airlines, which have been battered by fierce competition and high operating costs.    

The Jet-Etihad tie-up would be the biggest of the two deals, with a possible value of up to nearly $440m, but the government official provided no details on the stakes involved or costs. 

Talks between Etihad and Jet, which has 100 planes and is India’s largest airline by total passengers carried, have been the subject of recent media reports citing unnamed sources.

“The talks are on. This is more or less final. It may take around a month and half,” the government source told reporters, referring to the Jet-Etihad negotiations.

“This deal is not just about investment but also technology and partnership in many other ways,” said the source, who declined to be identified.

At current share prices, a 49 percent stake in Jet Airways would be valued at Rs24.3bn ($437.17m), while for Spicejet, the value would be Rs10.82bn. 

The Indian aviation industry lost a combined $2bn last year, and all but unlisted IndiGo lost money, hurt by high state taxes on jet fuel, expensive airports and regulatory uncertainty.

Jet and Etihad already have a code-sharing agreement and a deal could help them win market share from state-owned Air India, as well as from Dubai-based Emirates Airline, which dominates routes between India and the Middle East. 

Etihad is interested to access to Jet’s low-fare domestic network under JetKonnect, an industry source said in Dubai.  

A Jet official could not immediately be reached for comment. Etihad declined comment.

Thus far, there is no clarity on valuations for a Jet-Etihad deal, and internal finance teams of both airlines are in talks, without involving bankers, said another source, who is familiar with the discussions but not directly involved.

The founder of Jet Airways is likely to convert shares owned by its holding company into his personal stake to comply with foreign investment regulations, the government source said.

Tail Winds Ltd, the Isle of Man-based investment vehicle of Jet founder Naresh Goyal, currently holds 79.99 percent of Jet Airways.

Etihad, which expanded globally through stake purchases in firms like Air Berlin and Virgin Australia, will look to extend its geographical reach to India and other Asian markets, its chief executive told Reuters last month.  

“Etihad Airways welcomes the Indian government’s decision to allow foreign investment in Indian carriers. The Indian aviation industry offers tremendous potential, with significant passenger movement on domestic and international sectors,” Etihad said in a statement last week.

AirAsia Bhd, Asia’s largest budget carrier, currently flies to four south Indian cities and the eastern city of Kolkata, and about 20 countries across Asia. 

Malaysian long-haul budget carrier AirAsia X, founded by Malaysian tycoon Tony Fernandes, who also heads AirAsia, pulled out of India earlier this year citing weak demand and lack of profits.

SpiceJet, a low-fare carrier with 48 planes that is India’s fourth-largest airline by domestic market share, declined to comment on a potential deal, while officials from AirAsia could not immediately be reached for comment.

AirAsia said in September it had no immediate plans to enter the Indian market because aviation fuel taxes and airport charges were too high. 

Jet Airways shares had gained 50.6 percent in November through Friday while SpiceJet was up 17 percent on speculation of potential stake sales. 

Shares in Kingfisher Airlines—grounded since last month by cash troubles — climbed by five percent to 14.4 percent even though there were no reports of foreign interest in the carrier led by liquor tycoon Vijay Mallya.

Kingfisher, which posted a record second-quarter loss of Rs7.54bn ($139m), has been desperately scouting for a foreign investor but analysts say it may have trouble due to its massive $2.5bn debt.

Muted interest from foreign carriers despite India’s liberalised rules has recently forced the government to rethink its foreign investment policy. A government source said earlier this month that India was open to further reforms to lure overseas investors into its airlines. 

Heavy competition is driven in part by government-subsidised losses at state-owned Air India. 

However, competition has eased somewhat and airfares have risen due to the decline in cash-and-debt strapped Kingfisher Airlines, the former No. 2 operator which has not flown since the start of October.

Any deal between an Indian carrier and a foreign airline has to be cleared by the Indian government. 

Reuters

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