JET ETIHAD DEAL

Mergers and Acquisition Assignment B

JETETIHAD DEAL
1 SECTORAL CONDITIONS PRE-DEAL
The Indian Aviation Industry had been going through a turbulent phase over the
past several years facing multiple headwinds - high oil prices and limited pricing
power contributed by industry wide over capacity and periods of subdued demand
growth. The challenges facing the airline operators were related to high debt burden
and liquidity constraints. Most operators needed significant equity infusion to effect
a meaningful improvement in their balance sheet. While in the beginning of 200809, the sector was impacted by sharp rise in crude oil prices, it was the decline in
passenger traffic growth which led to severe underperformance.

In the Pre deal era, the Indian domestic carriers had reported a combined loss of
US$ 1.6 billion for the financial year 2012-13 with more than 40% of the loss
accounted during the last quarter (January-March). Elevated fuel prices over the last
three quarters coupled with intense competition and hostile foreign exchange
environment had deteriorated the financial performance of airlines industry.

The rising costs of airports further accounted for a steep rise in passenger fares
which contributed to the loss making industry. Adding to the woes was the lack of
infrastructure development for airports. Effective from May, 2012, the Airports
Economic Regulatory Authority of India increased charges at the Delhi Airport by
346%, which it was estimated would result in a US$ 400 million increase in
operating cost for airlines. Another major cost component for Indian airlines was
the maintenance, repairs and operations (MRO). At that time, there were only 2
MRO facilities in India, which resulted in most maintenance and operation activities
to be conducted outside India.

In addition, regulatory hurdles had not helped the aviation sector. The airlines
operating on the lucrative metropolitan routes were compelled to ply on unviable
routes, with the intention of connecting remote areas under the Route Dispersal
Guidelines. Further, any airline proposing international operations had to have a
track record of domestic operations of at least 5 years.
To address the concerns surrounding the operating viability of Indian carriers, the
Government on its part initiated a series of measures including 1. Proposal to allow foreign carriers to make strategic investments (upto 49%
stake) in Indian Carriers
2. Proposal to allow airlines to directly import ATF
3. Lifting the freeze on international expansions of private airlines
4. Financial assistance to the national carrier. However, these steps alone may
not be adequate to address the fundamental problems affecting the industry

Competitive market
In the same period, the liberalization in Foreign Direct Investment (FDI) in
domestic passenger airlines and the exit of Kingfisher Airlines from the market
provided encouragement to other domestic players to accelerate their market
presence. While, the Tata group had already received approvals for two its two
separate joint ventures with AirAsia and Singapore Airlines and the ventures were
expected to be operational by the year 2013-14, there were talks of an alliance
between SpiceJet and Emirates Airways. Post permission of investment by foreign
airlines, rumors of a number of Indian airline operators reaching out to foreign
airlines for strategic alliance started. While the FDI policy was revised in September
2012, Jet and Etihad entered into negotiations early in August itself. Etihad had a
first mover advantage, and the Jet-Etihad deal became the first investment by
foreign airline to invest in an Indian airline. By moving first, it seemed Etihad would
be able to get a major share of the outbound passengers from India.

2 ETIHAD AIRWAYS
Established by Royal Decree in July 2003, Etihad Airways is the national airline of
United Arab Emirates which commenced operations in November 2003 and has
developed into one of the fastest growing airlines in the history of commercial
aviation.
The airline seeks to reflect the best of Arabian hospitality - cultured, considerate,
warm and generous - as well as enhance the prestige of Abu Dhabi as a centre of
hospitality between East and West. Etihad Airways has been receiving the award for
Worlds Leading Airline at the World Travel Awards for the past 5 years, thus
establishing it as one of the worlds leading premium airline brands.

Business Details
Etihad Airways operates more than 1,000 flights per week to over 120 passenger
and cargo destinations in Middle East, Africa, Europe, Asia, Australia & America. The
airline has a fleet of 120 Airbus & Boeing aircrafts, as of August 2015. Etihad
Airways also carried 14.3 million revenue passengers in 2014, a significant increase
of 24% over 2013 levels.

Products
In addition to its core activity of passenger transportation, Etihad also operates
Etihad Holidays and Etihad Cargo. Also the airline established its own airline
alliance, called Etihad Airways Partners this year, which includes airline services
such as Alitalia, Jet Airways, Airberlin, Air Lingus, Air Serbia, Air Seychelles and
Virgin Australia. Booking for these airlines is consolidated under one network.
Etihad Holidays - Etihad Holidays is a division of Etihad Airways that offers a
comprehensive range of holiday packages to the airline's destinations. This program
features a choice of more than 700 hotels and 140 destinations in 45 countries in
the Middle East, Africa, Asia, Australia, Europe and North America.
Etihad Cargo - Established in 2004, Etihad Cargo is the fast growing cargo division
of Etihad Airways. From its hub at Abu Dhabi International Airport, Etihad Cargo
offers its customers a range of cargo services linked to its expanding international
route network and aircraft fleet. It reported an impressive cargo growth for 2014,
with 568,648 tonnes of freight and mail flown in total, a 17 per cent increase yearon-year.

Services
Etihad has 3 cabins, Diamond First Class, Pearl Business Class and Coral
Economy Class.
Diamond First Class - Etihad's existing First Class cabin, labelled "Diamond First
Class", features a perfectly flat, 6 ft 8 inch bed, in its own private suite. Their suites

include a personal mini-bar and wardrobe, in-built massage and a 23-inch

widescreen television. There is a changing room on board, and passengers also
have their own personal chef.
Pearl Business Class -There are two Business Class cabins - one that operates on
wide body aircraft and one that operates on narrow body aircraft. Business Class on
wide body aircraft offers a 6 ft 1 inch full flat bed, with finest dining and a 15-inch
widescreen television. There is also an in-built massage included. On narrow body
aircraft, they have a seat with 49 inches of pitch.
Coral Economy Class - Economy Class on all aircraft offers a cradle recline and 32
to 34 inch seat pitch. All seats have 10.4 inch entertainment screens offer 675
hours of films and games.
With the introduction of the Airbus A380s and Boeing 787-9s, new cabins were
introduced, their names being: The Residence, The Apartments, First class suite (not
A380), Business Studio and Economy Smart seat. The rest of the fleet will gradually
be retrofitted with these cabins except for the Residence and Apartment cabins
which will only appear on the Airbus A380s.

Financials
Etihad Airways achieved its strongest financial results to date in 2014, posting a net
profit of US$ 73 million on total revenues of US$ 7.6 billion, up 52.1 per cent and
26.7 per cent respectively over the previous year.
Some key elements

Revenue soared to US$ 7.6 billion on back of record passenger and cargo
volumes.
Passenger demand and revenue growth continued to outperform capacity
intake
EBITDAR (earnings before interest, tax, depreciation, amortization and
rentals) and EBIT (earnings before interest and tax) up by 16.2 per cent and
32.5 per cent respectively
Partnership strategy delivered strong performance, with partnership revenues
up 37.7 per cent to US$ 1.1 billion, representing 24 per cent of passenger
revenues
Etihad Cargo exceeded ambitious financial target to become a billion dollar
company in 2014, with annual freight and mail volumes rising from 487,000
to 569,000 tonnes

The record performance, which marked the airlines fourth consecutive year of net
profitability, also saw earnings before interest and tax (EBIT) up 32.5 per cent to
US$ 257 million. Earnings before interest, tax, depreciation, amortization and
rentals (EBITDAR) were up 16.2 per cent to US$ 1.1 billion, representing a 15 per
cent margin on total revenues.

HR Policies
Benefits of being an Etihad Pilot:

Fantastic tax-free salary which is competitive within the industry and

reviewed on a regular basis.
Meal Allowance during layovers.
Company provided accommodation or a generous accommodation allowance.
Access to exclusive state of the art Etihad swimming pools, health clubs and
fitness centres at no cost.
Flight Duty Allowance.
42 Days Annual Leave.
Staff travel Benefits.
End-of-service Benefits.
Excellent free Private Medical Insurance.
Accidental and Live Insurance Benefits.
Employee discounts and Special Offers at restaurants, shops, hotels and
leisure facilities across the United Arab Emirates.

Benefits of being a Cabin Crew Member

Fantastic tax-free salary which is competitive within the industry and

reviewed on a regular basis.
Free accommodation in a modern shared fully-furnished apartment, with your
own private facilities. Everything is provided for you to ensure that you have
a safe, secure and comfortable home in Abu Dhabi.
Etihad transport to take from your accommodation to the airport for your
flight duties and then to bring you back home again after your flight.
Access to exclusive state of the art Etihad swimming pools, health clubs and
fitness centres at no cost, and reduced rate massage, hairdressing and
beauty treatments to keep you looking your best.
Leading airline travel benefits including unlimited personal travel at special
rates, an annual leave ticket and generous concessions for family and friends
to use.
Excellent free private medical insurance and life/accident insurance.
Annual leave of 30 days.
Genuine advantages for career progression in a fast paced dynamic working
environment.
Special discounts at restaurants, shops, hotels and leisure facilities across the
United Arab Emirates and the region.

Competitive Features

Etihad Airways has 195 interline relationships and 49 codeshare partnerships in

place with airlines such as Air France, Air New Zealand, Air Canada etc. Codeshares
and strategic partnerships delivered over 3.5 million passengers onto Etihad
Airways flight in 2014, an increase of 40 per cent over the 2.5 million passengers in
2013.

Also codeshares give Etihad Airways a combined passenger and cargo network of
nearly 500 destinations, and over 21,000 flights per week, more than any other
Middle Eastern airline.

3 JET AIRWAYS
The second largest airline in India, both in terms of market share and passengers
carried, Jet Airways operates out of India with 300 daily flights to 74 destinations
worldwide. The company is listed on Bombay Stock Exchange, with 80% of its
shares held by Naresh Goyal, the promoter of the company.

Business Details
With a fleet size of 116, Jet Airways serves 47 domestic destinations and 22
international
destinations,
a
total
of
69
in
19
countries
across Asia, Europe and North America. Its main hub is Mumbai, with secondary
hubs at Delhi, Kolkata, Chennai, Bengaluru.

Products
In addition to the core activity of its passenger transportation, Jet Airways used to
operate two low cost segments called Jet Lite and Jet Konnect, both of which have
been discontinued.
Jet Lite - JetLite was a wholly owned subsidiary of Jet Airways. It was established as
Sahara Airlines on 20 September 1991 and began operations on 3 December 1993
with two Boeing 737-200 aircraft. Initially services were primarily concentrated in
the northern sectors of India, keeping Delhi as its base, and then operations were
extended to cover all the country. JetLite ceased operations on 25 March 2012 after
merger with Jet Konnect.
Jet Konnect - JetKonnect, formerly Jet Airways Konnect, the low-cost brand of Jet
Airways, was launched on 8 May 2009. The rationale for launching Jet Konnect was
to close down loss-making routes and divert the planes to more profitable routes
with higher passenger load factors. According to Jet Airways, the decision to launch

a low-cost brand instead of expanding the existing JetLite was taken to avoid the
regulatory delays associated with moving excess aircraft and assets from Jet
Airways to JetLite, which have separate operating codes. On 1 December 2014, Jet
Konnect was fully merged with Jet Airways with complementary meal services to
take on the competition from the new airlines.

Services
Jet Airways has three cabins:
First Class - First class private suites are available on all Boeing 777-300ER
aircraft. All seats convert to a fully flat bed, similar to Emirates or Etihad first class
seat. It was the second airline in the world to have private suites. All seats in First
have a 23-inch widescreen LCD monitor with audio-video on-demand systems
(AVOD), BOSE noise cancelling headphones, in seat power supply, and USB ports
etc. Jet Airways is the first Indian airline to offer fully enclosed suites on its aircraft;
each suite has a closable door, making for a private compartment.
Premire - Premire (Business Class) on the Airbus A330-200 and Boeing 777300ER international fleet has a fully flat bed with AVOD entertainment. Seats are
configured in a herringbone pattern with each seat offering direct access to the
aisle. Each Premire Seat has a 15.4-inch flat screen LCD TV with AVOD. USB ports
and in-seat laptop power are provided. All seats are standard recliner business-class
seats with a few newer aircraft with electronic recline and massager.
Economy Class - Economy class on Jet's A330-200/777-300ER aircraft has 32-inch
seat pitch. Seats on the A330-200/777-300ER have a "hammock-style" net footrest.
Each Economy seat on the A330-200/777-300ER has a personal 10.6-inch touch
screen LCD TV with AVOD.

Financials
Jet Airways has been incurring losses over the years, with 2011 being the only year
in which the company posted a substantial profit. Against revenue of INR 17.22
million, the company posted a loss of INR 3.66 million.
Here is a summary of its financial performance for the past 5 years:

The dwindling performance also saw earnings before interest and tax (EBIT)
dropping to a negative INR 68 million.

HR Policies
In October 2008, Jet Airways laid off 1,900 of its employees, resulting in the largest
lay-off in the history of Indian aviation. However the employees were later asked to
return to work; the then Civil Aviation Minister Praful Patel said that the
management reviewed its decision after he analysed the decision with them.
The ensuing drama that unfolded resulted in loss of INR 200 crores to Jet Airways.
This incident highlighted the short sightedness of the HR Managers of the company.

Competitive Features
Jet Airways has codesharing partnership with 17 airlines including Etihad Airways,
Airberlin, Air Canada etc. in order to enable the passengers to fly to more
destinations on Jet Airways marketed flights, apart from 149 interline partners.

4 DEAL ATTRACTIVENESS
Jet Airways Perspective
November 20, 2013 was a historic day for the Indian aviation industry after Jet
Airways (India) Limited and Etihad Airways concluded the much talked about US$
379 million investment by Etihad to acquire a 24% stake in Jet (Deal). In addition
to the equity investment, Etihad has also agreed to infuse US$ 150 million into Jet
Privilege, the frequent flyer program of Jet, to be managed by its subsidiary, Jet
Privilege Private Limited and also provide or arrange for a loan of US$ 150 million to
Jet. Earlier this year, Etihad had purchased 3 slots owned by Jet at the Heathrow
airport in London for US$ 70 million.

In 2008, Etihad entered into a code-share agreement with Jet for connecting various
cities in India to destinations in Europe. Under the code-share agreement, Jet had
rights to codeshare flights between India and Abu Dhabi and between Abu Dhabi
and Paris. The code-sharing was available from Chennai, Delhi, Hyderabad, Kochi,
Kozhikode, Mumbai and Thiruvananthapuram in India. Jet is in the process of
expanding its code sharing agreement with Etihad to the Mumbai- Brussels- Newark
route as well. Simultaneously with the code-share agreement, Jet and Etihad also
entered into an agreement to link their frequent flyers programs. Etihad has now
agreed to invest US$ 150 million into Jet Privilege Private Limited (Jet Privilege), a
wholly owned subsidiary of Jet. Post completion of this transaction, Etihad will hold
50.1% of Jet Privilege with 49.9% being held by Jet.
The listed carrier, Jet is struggling with losses and is
saddled with a debt burden of more than Rs 13,000 crore.
The fresh flow of funds will save Goyal's airline some Rs
230 crore in interest costs annually, according to an
Edelweiss Research note. Etihad will also invest $220
million in a frequent flyer programme and slots at
Heathrow airport, and will arrange another $150 million to
help Jet pare its high-cost debt.

The Jet-Etihad deal, values Jet at Rs 8545 crores, is being

seen as a potential game changer. While Jet will be able get
fuel at cheaper rates and improve its margins, Etihad will
be able to tap into one of the fastest-growing aviation
markets in the world, where air travel is forecast to triple
by 2021. Jet currently flies only to Brussels, Milan and
London on its own, while through code share agreements, it
can fly to 14 other cities. Etihad, has a much larger
international presence, especially in Europe, where it flies
to 17 destinations on its own, and to 88 destinations
through code share agreements. The deal would give Jet
access to Etihads wide European network.
One of the main concerns for Indian airlines is the huge fuel costs. It is estimated
that the deal would result in cost savings of approximately 8-10% in fuel costs. This
would be the case especially in long international operations when the flights would
now halt at Abu Dhabi.

Etihad Perspective

Etihad has been on a globalization phase acquiring stakes in airlines globally. The
deal for them was route to tapping into one of the fastest-growing aviation markets
in the world, where air travel is forecast to triple by 2021. Possibility of three times
increase in seats between India & UAE. It helps airline build sheikhdom into an
intercontinental transfer hub.
The deal might help Etihad in cannibalizing the traffic share of Indian airlines by
flying passengers to various parts of the world through its hub airport in Abu Dhabi
Etihad, which has a fleet of 73 aircraft, flies to nine cities in India. But it can now
access 23 cities, thanks to Jet. It can also use the Jet connection to tap the huge
international traffic going through Dubai and route it through Abu Dhabi instead.

Etihad has been on a globalization phase acquiring stakes in airlines globally. Deal
with Jet Airways provided them opportunity to expand their reach in Sub Continent
region also.

Jetihad
The alliance would enable Jet and Etihad to cater to a large number of destinations
collectively. Currently, Jet flies to 77 destinations, out of which 20 are international
and Etihad flies to 88 destinations. Cumulatively, post the investment, it is claimed
that Jet and Etihad would fly to 140 destinations. Jet and Etihad would also look at
joint purchasing of fuel, spare parts, etc. The fleet size will increase to 182 and
frequent flyers to 4.4 million. The revenue increase will be high i.e. up to $8.3
billion.
United Arab Emirates (UAE) has agreed to provide the change of gauge facilities
to Indian airlines at Abu Dhabi. With this permit Indian airlines will change an
aircraft without changing the flight number.

5 VALUATION
Etihad bought a stake in the Jet Airways by valuing the Jets market cap at ~$1.2B
(Rs 7000 cr) Jet Airways was the first Indian company to benefit from the new FDI
Policy for the Airline sector. In case of Jet airways, there are two segments
domestic and international. Domestic segment is unprofitable and International
segment has turned profitable. The airline currently has a debt to the tune of $2.1 B
(Rs. 10328 Cr). Out of this debt 75% is owing to aircraft and 25% is due to the
working capital requirements of the business. This 25% working capital debt is
perennial and will always exist for the firm. Rest 75% of the debt is a concern for
any investor. The airline plans to pay back this debt through sale-lease back of the
aircrafts. This means that the airline should sell its aircraft and then lease back
these planes for operations. The capital received from the sale of plane can be used
to pay back loans. The benefit of this model is twofold. First this should decrease the
interest expense on debt used to buy the aircraft and second there will be no
expense when airline wants to ground these planes. The company can pay back all
of its loan by sale-lease back model in next 5 years.
Through this analysis, we know that Jet Airways can be a debt free airline and has
the ability to generate free cash flow. Plus, it has a niche in international travel
market which cannot be easily destroyed. Hence it is sustainable.
Jet generated an EBITDA of $352 M from international operations in FY13. EBITDA is
the proxy for free cash flow. The international segment is going to grow at the rate
of 4-5%. This is a global growth rate in international traffic. The valuation of
international segment of Jet airways comes out to be equal to $3.1 B based on free
cash flow analysis.
On multiple basis, the airline transaction multiple, EV/EBITDA, is 11.3 times
according to 2012 KPMG report. Now this means that the international segment is
valued at 11.3 x $352 M = $3.9 B.

Hence the current enterprise valuation of Jet airways is anywhere between $3.1 to
$3.9 B. Out of this valuation, removing the current debt of $2.1 B then the market
capitalization of Jet Airways should be $3.1 B $2.1 B = $1 B~5900 Cr.
The 2.73 crore shares represent a 24 per cent stake in Jet Airways' fully-diluted
equity capital. At 24 per cent, the Abu Dhabi-based airline will not have to make the
mandatory open offer for Jet. According to Sebi rules, a buyer acquiring a 25 per
cent stake in a listed company will have to make an open offer to the shareholders
of the target company, and the minimum stake that the acquirer can own after the
open offer is 51 per cent. However, the government of India allows foreign airlines
to own only up to a 49 per cent stake in Indian carriers.
Deal Price: Rs. 754.74 per share
Offer Price Premium: 31.55 % premium
Market Price: Rs 573.85 (BSE)
Rs 573 (NSE)
Shareholders Valuation: Rs 610-640
Deal valuation was of Jet Airways was at Rs 8,574 crore. Jet was dealing with
mounting debts and entered into the partnership to use Etihads cash to pay debt
and get global partner.
As part of the deal, there will be an overall cash infusion of $ 750 million in debt and
equity. The infusion will help Jet cut its debt from $2.1 billion to $ 1.5 billion
$379 million

- Equity investment

$150 million

- Investment in Jets frequent-flyer programme

$150-million loan - Assistance to be provided in securing debt

$70 million

- Sale and lease-back of Jets Heathrow slots

Shareholding pattern post the deal:-

Share Holding Pattern

Naresh Goyal

Etihad

Public

25%
51%
24%

It was in accordance with The Securities Contract (Regulation) Rules, 1957 which
was amended in 2010 to provide for a minimum public shareholding (MPS) of 25%
for listed companies in the private sector.

6 SECTORAL CONDITIONS POST DEAL

One of the growing sectors of the Indian economy is the aviation sector. It is the
world's ninth largest civil aviation market and ranks fourth in domestic passenger
volume. The civil aviation market in India is all set to become the world's third
largest by 2020.
In India's airports sector, total passenger traffic stood at a 169 million in FY14,
registering an increase of 5.9 per cent. Domestic passenger traffic expanded at a
compound annual growth rate (CAGR) of 11.6 per cent over FY0614. It is expected
to touch 209 million by FY17. International passenger traffic posted a CAGR of 9.6
per cent over FY06-14 and is set to touch 60 million by FY17.
The airline industry in India is passing through its most competitive phase to date,
where both the legacy and the newly entered low-cost carriers alike are engaged in
fierce competition; and are adding capacity, adding routes, adding features &
products and dropping prices. The aggressive route expansion plans of the Indian
carriers have already resulted in excess supply over a deficient infrastructure
leading to congestion on the ground; and congestion in the skies
\The key challenge for India's civil aviation sector is not 'more airlines', but more
infrastructure. India allows 100% FDI in green field airports and this is a good
example of both proactive government policy and also a deep focus on 'national
priorities'. Additional airlines and foreign owned carriers will certainly mean more
aircraft & more congestion.
As per the Abu Dhabi-based carrier's chief executive, James Hogan , Etihad Airways'
stake purchase in Jet Airways should be seen as an investment in the Indian market
and not in the airline per se.

The two airlines have been code-share partners since 2008 and their relationship
was strengthened in November 2013, after Etihad Airways received approvals to
acquire a 24 per cent stake in Jet Airways, marking it the first investment by a
foreign carrier in India's airline industry. The deal helped Jet to infuse cash $750
million, which helped cut its debt

This helped reduce Jets debt but also made operations slightly more cost-effective
due to asset sharing and gave Jet indirect access to many of Etihads overseas
destinations. So going by this particular purchase by an airline entity, that
investments by foreign carriers is a most
positive development for Indian carriers is a given. Jet Airways has benefited from
access to a powerful hub in Abu Dhabi and Etihads global network. In addition it
has been able to refinance its debt through lower cost funding. It also benefits from
scale economies in procurement right across the board. They continue to explore
collaborative purchasing opportunities for fuel, spare parts, insurance and
technology support.
The wide-ranging partnership has numerous advantages for travelers, including
enhanced connections across the world through an expanded codeshare
agreement, reciprocal 'earn and burn' rights and tier level recognition on the Jet
Privilege and Etihad Guest frequent flyer programs.
The valuation of Indigo is at about $1.6 billion, approximately Rs.10, 000 crore.
Indigo plans to raise about $400 million in exchange of 25% stake through an IPO.
The current valuation is double of its closest competitor. Qatar Airways has been
showing interest to buy into Indigo for the past few years, however Indigo has not
been keen on the deal. The Indian aviation market is opening up with expected
growth in travel numbers estimated at about 10% for the next decade.

7 LEGAL ISSUES AND STRUCTURE

In September 2012, foreign investment in aviation industry in India was liberalized.
In January 2013, Jet was the first airline to make a public announcement when it
informed the Bombay Stock Exchange of talks with Etihad of potential investment
by Etihad in Jet. The transaction was to be carried out by way of preferential
allotment of 27,263,372 shares of Jet to Etihad ("Transaction"). For the purpose of
consummating the Transaction, the parties entered into (a) investment agreement
dated April 24, 2013 ("IA"), (b) a shareholders' agreement between the promoters of
Jet, Jet and Etihad ("SHA"), (c) a commercial cooperation agreement dated April 24,
2013 ("CCA") and (d) a corporate governance code pursuant to the SHA ("CGC").
The IA, SHA and the CCA were amended on September 19, 2013 on the basis of
certain issues raised by regulators (the amended agreements and the CGC are
collectively referred to as the "Transaction Documents" hereinafter). The proposed
preferential allotment was approved by the board of directors and the shareholders
of Jet on April 24, 2013 and May 24, 2014, respectively.

LEGAL APPROVALS REQUIRED

The Transaction required the approval of a number of regulators, including the
Cabinet Committee on Economic Affairs ("CCEA"), Foreign Investment Promotion
Board ("FIPB"), the Competition Commission of India ("CCI") and SEBI.

APPROVAL TIMLEINE:
FIPB

The FIPB was to consider approving the Transaction in its meeting on

June 14, 2013.2 However, the decision was deferred by FIPB stating
that more clarity was required with respect to Etihad's rights under
the Transaction Documents. Subsequently, the Transaction was
approved by FIPB in its July 29, 2013 meeting. The approval was
conditional requiring certain conditions as mentioned therein to be
satisfied.

SEBI

SEBI had approved the Transaction on October 1, 2013 stating that

the Transaction would not trigger open offer obligations under the
SEBI (Substantial Acquisition of Shares and Takeovers Regulations),
2011 ("Takeover Code"). However, SEBI did not comment on the CCA,
and had specifically stated that it would be guided by the decision of
the other regulators in this regard.

CCEA

On October 3, 2013, the CCEA approved the Transaction.3

CCI

The CCI approval ("CCI Order") for the Transaction was received on
November 12, 2013.4

TERMS AND CLAUSES

The whole time member of SEBI held that the Transaction would not attract the
provisions of the Takeover Code. In concluding the same, it relied on the following
points.

The Ministry of Finance ("MoF") has clarified that the mandate of FIPB/ CCEA
is merely to ensure compliance with the FDI Policy. The FDI Policy has been
revised by PN 6 to state 'A Scheduled Operator's permit can be granted only
to a company the substantial ownership and effective control of which is
vested in Indian nationals". Accordingly, FIPB and CCEA's approval is evident
that the Transaction is in compliance with the FDI Policy.

Comparing the definitions of 'control' under the FDI Policy and the Takeover
Code, the Order mentioned that the definitions are para materia. While
comparing the Takeover Code definition of control with that under the CA
2002, the Order held that the definition as under CA 2002, which deals with
'controlling the affairs and management' is of much wider import than that
under the Takeover Code, which includes the right "to appoint majority of the
directors" or controlling 'the management or policy decisions'. Accordingly,
the decision of CCI would not be the guiding factor for SEBI in determining if
control has been acquired under the Takeover Code.

In determining whether Etihad was a person acting in concert, the Order

emphasized that the definition of persons acting in concert, read with Justice
P.N. Bhagwati committee's observations required a common objective of
acquisition of shares or voting rights or control of the target company. Unless
the commonality of objective of acquisition of shares/ voting rights/ control
was established, the concerned persons would not be persons acting in
concert. The objective of the CCA was merely to exploit synergies by detailing
operational modalities.

Since the Promoters were not parties to the CCA, and as per the Supreme
Court's verdict in Daiichi Sankyo, an acquirer cannot be a person acting in
concert with the target company itself, it was held that the Etihad and Jet are
not persons acting in concert.

The right to control the decisions rests with the Cooperation Committee and
the four Facilitation Groups (formed under the CCA), which would make
recommendations, and such recommendations would need to be approved by
the boards of both Jet and Etihad. Since the recommendation would also need
to be approved by Jet's board, the CCA does not affect the right to control
policy decisions.

The Order also relied on the lack of substantial controlling powers with Etihad,
which included, inter alia:
o

Etihad's right to nominate only 2 out 12 directors;

Promoters being able to nominate the chairman of the board of Jet,

who shall have a casting vote;

Etihad not having any quorum rights at the board or

meeting;

general

Lack of any veto/ affirmative voting rights with Etihad;

Any pre-emptive/ tag along rights with Etihad.

8 RESULTING ENTITY PERFORMANCE POST-DEAL

Jet Airlines
The most important benefit that Jet shall derive from this deal
1. Reduction of interest payments on the outstanding debt
o The debt on Jets books was approximately US$ 2.1 billion as of
December 2012.
o Current interest payments of approximately US$ 167 million annually.
o Capital infused by Etihad shall be used by Jet to retire some of the
outstanding debt on the books of Jet.
o Retirement of debt would result in cost savings of INR 190200 crores
annually.
2. Provision of low interest loans to Jet.
o Jet currently pays an average annual interest rate of 14%.
o With the low interest loans provided by Etihad, Jet would save
approximately US$ 30 million annually on interest alone.
3. Code Share Agreements
o Jet currently flies only to Brussels, Milan and London on its own
o Through code share agreements, it can fly to 14 other cities.
o Codeshare traffic surged by 93 per cent from 162,476 passengers in
the third quarter of 2013-14 to 314,351 in the third quarter of 2014-15
4. Jet can leverage Etihads international presence
o In Europe, Etihad flies to 17 destinations on its own, and to 88
destinations through code share agreements.
o The deal would give Jet access to Etihads wide European network.
5. One of the main concerns for Jet was the huge fuel costs. It is estimated that
the deal would result in cost savings of approximately 8-10% in fuel costs.
This would be the case especially in long international operations when the
flights would now halt at Abu Dhabi.

Etihad Airlines
1. Access to Indian market considering the large population of the country and
the increasing passenger traffic(Emirates has 13% market share, Etihad has a
mere 2% share)

2. Higher number of flights as compared to competitors.(Emirates currently flies

185 flights weekly to 10 Indian destinations as compared to Etihads 59 to 9
destinations)
3. Tying up with Jet will help Etihad provide passengers a substitute hub at Abu
Dhabi as against Emirates Dubai
4. The deal would allow Jet to fly flights directly from 23 locations in India to Abu
Dhabi and from there to the European and American destinations.
5. Etihad had a first mover advantage, as the Jet-Etihad deal became the first
investment by foreign airline to invest in an Indian airline..

Mutual Benefits
1. Change of gauge facilities to Indian airlines
o United Arab Emirates (UAE) has agreed to provide the change of
gauge facilities to Indian airlines at Abu Dhabi.
o This will now permit Indian airlines to change an aircraft without
changing the flight number.
2. After the alliance, Jet would get to use wide body aircrafts to transfer
passengers from Delhi, Mumbai and Bengaluru to Abu Dhabi, and use narrow
body aircrafts for transport to nearby locations. This would lead to better
demand management.
3. Cater to a large number of destinations collectively
o Current statistics
i. Jet - 72 destinations, out of which 20 are international
ii. Etihad 84 destinations
iii. Post alliance - 140 destinations
4. Joint purchasing of fuel, spare parts, etc.
5. Travelers flying by either Jet or Etihad can claim benefits of the Privilege
program of the other airline.
6. Helped the marketing efforts - Etihad and Jet jointly sponsor the Mumbai
Indians IPL cricket team and it would have been difficult for Jet to commit
funds on its own.
7. Crude oil price has moderated in recent months and the rupee has remained
stable after appreciating from the lows of August last year this has meant
lower fuel costs. If the domestic economy improves, more passengers,
including those preferring full service carriers, could take to the skies. That
will bode well for Jet-Etihad