Jet Airways announces strategic alliance with Etihad Airways

Jet Airways on Wednesday announced a strategic alliance with Etihad Airways, saying it would sell 24% stake to the Abu Dhabi-based carrier for about Rs 2,058 crore, marking the first investment by a foreign carrier in an Indian airline since the change in FDI policy.

Bringing curtains down on almost six months of tough negotiations, top officials including Jet promoter Naresh Goyal and Etihad President and CEO James Hogan, announced the strategic equity alliance in Abu Dhabi under which the Indian private carrier would sell 27.26 million shares in a preferential offer to Etihad at Rs 754.74 a piece.

"The value of this equity investment is USD 379 million (about Rs 2,058 crore) and will result in Etihad Airways holding 24% of the enlarged share capital of Jet Airways," a joint statement by the two airlines said.

The deal is subject to shareholders' nod and conditions precedent including regulatory approvals.

The two airlines claimed that their alliance would lead to Indian passengers from 23 cities to gain direct access to an expanded global network. Jet would also enhance its services from its primary hubs of Delhi and Mumbai and introduce new flights from Hyderabad and Bangalore.

The new India-Abu Dhabi routes and Jet Airways would "establish a Gulf gateway for flights to the US, Europe, Africa and the Middle East," the statement said, adding that their combined global network would cover over 140 destinations.

It said the strategic alliance would bring additional traffic, frequencies and revenues to metro airports, as well as other airports of Airports Authority of India and bring "significant benefits to the Indian economy."

"Substantial ownership and effective control will remain with Indian nationals, with Goyal as non-executive Chairman holding 51 per cent of the company," the statement said.

Goyal, who was earlier bitterly opposed to opening up of FDI participation for foreign airlines, was the first to move immediately after the government allowed international carriers to pick up a maximum of 49 per cent stake in domestic airlines last September.

Giving details of the deal, the statement said, "This strategic investment with a USD 600 million commitment from Etihad Airways will help further strengthening of Jet Airways' financial position."

Etihad would also inject USD 220 million to create and strengthen a wide-ranging partnership between the two carriers, including a strong codeshare arrangement.

As part of the deal, Etihad has already paid USD 70 million in February to purchase Jet's three pairs of Heathrow slots through the sale and lease back agreement. Jet Airways continues to operate flights to London utilising these slots.

Etihad would also invest USD 150 million "by way of a majority equity investment in Jet Airways' frequent flyer programme 'Jet Privilege', subject to regulatory and corporate approvals and final commercial agreements. These are expected to be completed within the next six months, it said.

"I have no doubt that this partnership with Etihad Airways is a win-win situation for all our stakeholders, especially our guests, who will now have access to a much expanded global network," Goyal said in the statement.

"This transaction further strengthens the balance sheet of Jet Airways and, more importantly, underpins future revenue streams, which will accelerate our return to sustainable profitability and liquidity," the Jet promoter said.

Hogan said the deal was "expected to bring immediate revenue growth and cost synergy opportunities, with our initial estimates of a contribution of several hundred million dollars for both airlines over the next five years."

"The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world," the Etihad chief said.

This will be first deal since the government in September last year allowed foreign carriers to buy up to 49 per cent stake in local airlines.

A stake in Jet Airways will help Etihad tap into one of the fastest-growing aviation markets in the world, where air travel is forecast to triple by 2021.

For Jet, the deal will provide Jet with cash to retire debt that totalled USD 2.3 billion at the end of March.

The Indian carrier, which had 116 aircraft, is selling and leasing back planes to free up cash and repay USD 600 million debt.

Last month, Malaysia's AirAsia Bhd won approval to start a budget airline in a joint venture with Tata Sons and another local company.

The two deals would help breathe fresh life into India's aviation industry where competition is stiff and operating costs high.

Bank of America Merrill Lynch and Credit Suisse advised Jet on the deal, while HSBC was the adviser for Etihad.

Source-http://www.dnaindia.com/money/1826544/report-jet-airways-announces-strategicalliance-with-etihad-airways

Etihad Airways invests in Jet Airways and forms strategic alliance

Etihad Airways, based in Abu Dhabi, has completed an investment in Indias Jet Airways for a 24% equity stake. That stake, resulting in an investment of US $379 million, creates another equity alliance for Etihad, modeled after their equity investments in Air Berlin and Aer Lingus. This transaction has been enabled by a relaxation of Indias formerly quite strict rules on foreign direct investment in airlines, and may lead to further foreign investments in this sector.

This alliance will create significant benefits for both carriers, as it opens Etihad to 23 cities in India, and provides Jet Airways passengers connection possibilities to the US, Europe, Middle East and Africa that were previously unavailable. Etihad flies to 88 destinations, Jet to 77, and eliminating duplicates, they combine into a 140 unique destination network.

James Hogan, Etihad Airways, indicates that the investment and joint ventures are expected to bring immediate revenue growth and cost synergy opportunities, with our initial estimates of a contribution of several hundred million dollars for both airlines over the next five years. He indicated that the Indian market is fundamental to our business model of organic growth partnerships and equity investments.

Naresh Goyal, CEO of Jet Airways, stated that the company was extremely happy to be in a partnership with an airline that shares our customer-centric operational philosophy and ethos. He indicated that the transaction will be a win-win for the airlines and their

customers, and that the transaction will underpin future revenue streams that will accelerate Jets return to sustainable profitability and liquidity.

Some analysts are citing the benefits of cross-shareholding as the cement to hold together airlines over the longer term that are stronger than Star, one World or Sky Team alliances. We remember the Qualiflyer alliance between Singapore, Swissair and Delta, some years

ago, in which each purchased a 5% shareholding in the other. Today, Delta is in a different alliance than Singapore and Swiss, the successor to Swissair. While cross shareholdings typically are stronger than an alliance, divorces can still occur, although in this case we think that unlikely.

The bottom line:

Jet Airways now has a strong partner through in Etihad which it can offer services to the US, Europe, Africa and the Middle East, and will benefit from connecting traffic from those locations to its destinations in India. Strategic alliances are not new in this industry, and have typically resulted in significant gains for each party, with the Northwest-KLM alliance perhaps the best example. This alliance should significantly benefit both parties, and indeed is a win-win solution. The question now is how beleaguered, bureaucratic, and financially hemorrhaging Air India will fare. It may be sitting out on the sidelines while Indias other airlines, including profitable LCCs, find international dance partners and improve their competitive positions.

Source-http://airinsight.com/2013/04/24/etihad-airways-invests-in-jet-airways-and-formsstrategic-alliance/

Jet Airways soars on Etihad deal

Jet Airways scrip on Thursday ended nearly 11 per cent higher after the company announced plans to sell 24 per cent equity to Etihad Airways for about Rs 2,058 crore.

After surging 20 per cent to Rs 688.60 - its one-year high on the BSE in intra-day - the stock finally ended at Rs 635.20, up 10.69 per cent from its previous close.

At NSE, the scrip closed 9.96 per cent up at Rs 630.25.

The market cap of the carrier rose by Rs 529 crore to Rs 5,483 crore.

"Jet Airways gained over 10 per cent for the day. The funds will help the company to reduce its high cost debt and can strategically help its international operations," said Nagji K Rita, Chairman & MD, Inventure Growth and Securities.

In the first ever investment by a foreign airline in an Indian carrier, Jet Airways on Tuesday announced plans to sell 24 per cent equity to Etihad Airways for about Rs 2,058 crore, as part of a strategic alliance that would lead to a major expansion in their global network.

Top officials, including Jet promoter Naresh Goyal and Etihad President and CEO James Hogan, announced the strategic equity alliance in Abu Dhabi under which the Indian private carrier would sell 27.26 million shares in a preferential offer to Etihad at Rs 754.74 a piece.

"The value of this equity investment is $379 million (about Rs 2,058 crore) and will result in Etihad Airways holding 24 per cent of the enlarged share capital of Jet Airways," a joint statement by the two airlines had said.

"Substantial ownership and effective control will remain with Indian nationals, with Goyal as non-executive Chairman holding 51 per cent of the company," the statement said.

This is the first investment by a foreign carrier in an Indian airline since the government changed the FDI policy in aviation last September to allow foreign carriers to pick up stake in their Indian counterparts.

Buying was also seen in other aviation stocks, where SpiceJet soared 18.24 per cent and Kingfisher Airlines rose by 0.88 per cent amid hopes of more foreign direct investment in the sector.

In the broader market, the BSE benchmark Sensex ended at 19,406.85, up 227.49 point.

Source-http://businesstoday.intoday.in/story/jet-etihad-deal-shares-on-bse-nse-on-april-252013/1/194405.html

Jet Airways to Sell 24% Equity to Etihad Airways

In the first ever investment by a foreign airline in an Indian carrier, Jet Airways today announced plans to sell 24 per cent equity to Etihad Airways for about Rs 2,058 crore, as part of a strategic alliance that would lead to a major expansion in their global network.

Bringing curtains down on almost six months of tough negotiations, top officials including Jet promoter Naresh Goyal and Etihad President and CEO James Hogan, announced the strategic equity alliance in Abu Dhabi under which the Indian private carrier would sell 27.26 million shares in a preferential offer to Etihad at Rs 754.74 a piece.

"The value of this equity investment is USD 379 million (about Rs 2,058 crore) and will result in Etihad Airways holding 24 per cent of the enlarged share capital of Jet Airways," a joint statement by the two airlines said.

"Substantial ownership and effective control will remain with Indian nationals, with Goyal as nonexecutive Chairman holding 51 per cent of the company," the statement said.

This is the first investment by a foreign carrier in an Indian airline since the government changed the FDI policy in aviation last September to allow foreign carriers to pick up stake in their Indian counterparts.

The two airlines claimed that the alliance would result in their combined global network to cover over 140 destinations and provide direct foreign connectivity to Indian passengers from 23 metro and non-metro cities.

Jet would establish a Gulf gateway for its flights to the US, Europe, Africa and the Middle East, apart from enhancing services from its primary hubs of Delhi and Mumbai and introducing new flights from Hyderabad and Bangalore.

Under the deal, Jet and Etihad would explore joint purchasing opportunities for fuel, spare parts, equipment and catering supplies, as well as external services like insurance and technology support.

This would be a major cost-saver for Jet which has been reeling under high fuel costs.

Other areas of co-operation would include joint training of pilots, cabin crew and engineers and maintenance of common aircraft types, the statement said, adding that a joint project management office would be set up to ensure delivery of all synergy benefits to both parties.

Goyal, who was earlier bitterly opposed to opening up of FDI participation for foreign airlines, was the first to move immediately after the government allowed international carriers to pick up a maximum of 49 per cent stake in domestic airlines last September.

Jet is likely to hold an Extraordinary General Meeting of its shareholders a month later to induct new members, including those from Etihad, on its Board.

Etihad chief Hogan and Chief Financial Officer James Rigney are likely to be inducted, sources said.

Source- http://news.outlookindia.com/items.aspx?artid=796325

It is good news on multiple counts as Abu Dhabi-based Etihad Airways has agreed to inject Rs 2,054 crore
($379 million) into Jet Airways. The massive investment in Indian civil aviation will translate into value for passengers, too. Overseas carriers can offer expertise, connectivity and convenience, besides funds. Simultaneously, it indicates intense competition among Indian carriers, at a time when they show some signs of emerging from the red. Aviation analysts say Jet would benefit from Etihads strategic expertise, cheap financing and possible fuel import benefits in addition to the capital injection. The two airlines claimed that their combined global network would cover over 140 destinations and provide direct foreign connectivity to Indian passengers from 23 metro and non-metro cities. Etihad has been on an acquisition spree to compete with other Gulf airlines, mainly Dubai-based Emirates and Qatar Airways. It has negotiated stake purchases in four foreign airlines, including Air Berlin, Virgin Australia, Aer Lingus and Air Seychelles. Last year, Etihad was ranked as one of the best airlines in the world by World Travel Awards. The awards are considered the Oscars of the travel industry. Bank of America Merrill Lynch and Credit Suisse advised Jet on the deal, while HSBC was the adviser for Etihad.

Decoding The Deal

Under the agreement, Jet and Etihad will explore joint purchasing opportunities for fuel, spare parts, equipment and catering supplies as well as external services such as insurance and technology support. This will be a major cost-saver for Jet, which has been reeling under high fuel costs.

What it means for Jet

. . . . .

Stake sale to bring much needed fresh capital, help reduce debt marginally Could now offer an alternative route for Indian passengers to fly to other West Asian, African cities and US, as

well as Europe, apart from its current hub in Brussels Can leverage Etihads strong presence in Europe by bringing in Indian passengers through Abu Dhabi

What it means for Etihad

Strategic investment enables Etihad to tap into Indias fast-growing 42 million strong travel market. Will help it to expand its limited footprint in India and make Abu Dhabi an alternative hub (apart from Dubai)

for Indians travelling to US and Europe

Could tap passengers to fly to Abu Dhabi and onwards to the US or Europe now from over 53 cities from

where Jet has services

Effect on Air India and low-cost carriers

. .

Analysts say alliance will have an adverse impact on Air India's business in the Middle East, US and Europe Domestic LCCs say a code share between the two in domestic skies could have an adverse impact on their

business

Investors
Long-term investors should stick to the shares of Jet as the company's more profitable international business will receive a major boost due to the synergies involved in Etihad checking in as a strategic investor. Shares in Jet Airways were trading up nearly 13% after gaining as much as nearly 20% on Wednesday.

Win-win situation for passengers

Aviation sector experts say the deal will benefit passengers as increased competition will bring down air fares. According to Captain Gopinath, the founder of erstwhile Air Deccan, the increased competition will lead to low air fares, besides bringing about improvement in the passenger amenities.

The agreement will allow Jet passengers from 23 Indian cities to gain access to an expanded global network. The Indian carrier will enhance services from Delhi and Mumbai and introduce flights from Hyderabad and Bangalore. Jet, which serves 125 locations, including Abu Dhabi, Bahrain, Doha, Dubai, Jeddah, Kuwait and Muscat in the Gulf region, agreed in December to expand a code-share pact with Etihad, which operates services to nine Indian locations.

Fuel costs
India increased traffic rights for Abu Dhabi to 50,000 weekly seats from around 13,000 seats at present. This will enable Jet to use Abu Dhabi as a hub and connect Indian travellers to Europe and North America where Etihad has a strong presence. Using Abu Dhabi as a hub will also reduce Jets fuel costs since it would get ATF at a cheaper rate in the oil surplus country. Fuel costs account for 42% of its net sales.

Governments role
Media reports say the Indian governments involvement, including recent visits to the United Arab Emirates by finance minister P. Chidambaram and others, helped to assuage the worries of Etihad. Not just Chidambarams visit, there has been government-to-government talks at various levels.The UAE wanted some assurances, which the Indian government has given them. Last year, India decided to allow up to 49% foreign ownership of airlines as part of reforms to help revive a slowing economy.

More to come
The deal sets a valuation benchmark for further investment in Indian airlines, with budget carrier SpiceJet Ltd frequently the subject of stake sale reports. IndiGo, the biggest carrier by domestic market share, is eventually expected to launch an initial public offering. Malaysia-based AirAsia, Asia's biggest budget carrier, plans to launch a domestic start-up airline in India later this year through a joint venture with the Tata conglomerate. The planned airline is in the process of seeking permissions from various regulatory bodies for an airline licence. The airline is expected to be set up with an initial investment of $50 million.