Jet Airways and its partner Etihad Airways are in advanced talks to provide financial support to the struggling Indian airline, which could potentially result in the Gulf carrier raising its stake, sources with direct knowledge of the matter told CNBC-TV18 on Wednesday.
The Abu Dhabi-based Etihad owns 24 percent in Jet, which has been beset by a severe cash crunch. Jet promoter Naresh Goyal is at Etihad’s headquarters in Abu Dhabi to etch a deal to avert a “distress” sale to Tata Sons, the sources said. They asked not to be named.
As part of the negotiations, Etihad may provide financial support to Jet Airways to meet its immediate liquidity requirement. This may also lead to Etihad increasing stake in Jet Airways to be equal stake partners with Naresh Goyal.
According to the sources, the broad contours of the deal will include Etihad merging its 50.1 percent stake in JetPrivilege into Jet Airways, releasing $150 million cash to the airline to meet it liquidity requirements. Etihad may also increase its stake in Jet Airways to over 35 percent.
Naresh Goyal may expect a valuation of half a billion dollars for JetPrivilege. Sources suggest that Etihad’s stake increase in the airline may be at a substantial premium to the current market price of Jet Airways. This will bring Naresh Goyal's stake to below 51 percent.
Negotiations between the two parties are at an advanced stage but many aspects are yet to be finalised, as per the sources.
"It is a logical solution for Jet Airways in the interest of all shareholders. Sell cheap at this juncture will deplete value for all,” said the sources. Experts have stated that Jet Airways with about $1.1 billion debt needs $300 million of immediate cash infusion.
“Valuations of JetPrivilege is dependent on the health of the airline, if Jet Airways’ financial situation improves, it will boost JetPrivilege as well. Jet Airways may look to monetise it later as well,” an industry expert said.
When contacted, Jet Airways spokesperson said, “Jet Airways continues to be in active discussions with various investors to secure sustainable financing to navigate through the current headwinds and create long-term growth. In line with its policy, the company does not comment on speculation.”
Analysing the reports, market expert SP Tulsian said, “Jet Airways is seen to be an excellent asset class and not a distress sale … this is a logical move by Jet management or may be by Naresh Goyal to counter the bid of Tatas and looking for inducting some other serious partners. On all parameters and peer comparison, I find Jet’s valuation to be quite attractive, it’s only the managerial capability and the financial distress which is causing losses to Jet Airways.”
Tata Group on Friday had
confirmed its interest in Jet Airways, but said that the ongoing discussions on buying stake in debt-laden airline were preliminary and no proposal had been made.
Jet, with its fleet of 124 aircraft, would return Tata to the forefront of Indian aviation in terms of size, almost 70 years after its first airline was nationalised, and six years after it re-entered the market with two joint ventures.
Jet Airways' deputy chief executive and chief financial officer Amit Agarwal had earlier admitted that the company was in talks with “multiple interested parties” for fund infusion as well as selling six of its Boeing 777 planes and a stake in its loyalty programme Jet Privilege.
The airline posted
a net loss of Rs 1,261 crore for the three months ended September, on falling rupee and low fares. After the June quarter results, the airline said it will monetise loyalty programme JetPrivilege and wet-lease some of its small aircraft to mobilise urgent working capital.
This was the third straight quarter of losses for the Naresh Goyal-run airline, which had in July publicly admitted to cash-flow issues.
The news is speculative in nature and we are committed to make appropriate disclosures in accordance with applicable regulations to avoid any speculative activities, said Jet Airways."The company continues to be in active discussions with various investors to secure sustainable financing to navigate through the current headwinds and create long-term growth. There are no discussions or decisions by the board, which would require a disclosure," the airline said in a reply to CNBC-TV18's query.