The deal is likely to happen in two tranches wherein there will be a direct sale of shares in the first tranche and then a second tranche will see issue of fresh equity and warrants, a person with knowledge of the development said, adding that Jet will most likely sign the term sheet on Friday, barring any last-minute disruptions.
Post the deal, Naresh Goyal will continue to be promoter and chairman of Jet Airways but the board of directors will be expanded to include some nominees of Etihad, the person said.
FE had reported on January 22 that Etihads offer will be taken up at Jets board meeting on February 1 to discuss the quarterly earnings.
Meanwhile, Jet's senior management including promoter Goyal and Etihad's senior officials including chief executive officer James Hogan met civil aviation minister Ajit Singh and commerce minister Anand Sharma on Thursday.
Hogan said the meeting with aviation ministry officials about a possible deal with Jet Airways was very good. The talks are still continuing, said Hogan, without giving more details.
Aviation minister Singh also added that the ministry has no problem if the two airlines get the requisite regulatory clearance. The government's role is to make sure that whatever agreement they come to is within the regulatory framework, Singh told reporters after the meeting the Jet Airways and Etihad delegations.
It's a very good move that Jet and Etihad are talking, he added. The government allowed foreign direct investment in aviation looking at the whole sector, their reach and technical expertise.
The Etihad and Jet delegations also met commerce minister Sharma later in the day.
We have put in place an enabling policy and any investment under the policy is welcome, said Sharma after the meeting.
Sources said that the two airlines are still ironing out valuation issues but the deal could take place at anywhere between Rs 760 and Rs 800 per share, giving Jet Airways a valuation of anywhere between Rs 6,500 crore and Rs 6,900 crore as per the current outstanding shares.
On Thursday, the Jet share closed 4.34% higher on the BSE at Rs 622.70. As per Thursday's share price, Jet's market valuation stood at Rs 5,370 crore. The carrier made a loss of Rs 1,236.10 crore in 2011-12 on revenues of Rs 14,815.91 crore. In the second quarter of 2012-13, the carrier made a net loss of Rs 99.67 crore on net sales of Rs 3,755.28 crore.
Jet's losses have eroded its shareholder equity and the net debt stood at Rs 8,900 crore at the end September 2012 for the standalone entity. On a consolidated basis, the company has a total debt of Rs 12,000 crore.
A fresh issue of equity, as proposed in the deal with Etihad, will improve Jet's debt-to-equity ratio, allowing it to borrow more if need be.
From Jet Airways' perspective, the most significant advantage from a potential deal would mean more equity and access to loan funds, a recent report from HSBC Global Research said. The main benefit to Etihad could probably largely be from better traffic feed from India into Abu Dhabi.
On a rough reckoning, analysts estimate that an equity infusion of Rs 1,600 crore would also lower Jet's FY14 net debt to Ebitda from 6 times to 4 and increase the interest coverage ratio from 1.8 times to 2.1.
Etihad is expected to put in place an Indian team to fully utilise the synergies with Jet Airways. The West Asian airline started in 2003 and has a fleet of 67 aircraft, which it plans to scale up to 158 by 2020. Jet Airways and Etihad already have a codeshare agreement wherein they can sell tickets on each other's flights.
But an equity purchase in Jet Airways will allow Etihad greater access to India and it would be able to offer greater competition to Dubai-based Emirates. Currently, the Abu Dhabi to India route has 119 weekly flights, which is significantly less than the Dubai to India route, which has 352 weekly flights and is dominated by Emirates.
Jet Airways along with its low-cost brand Jet Konnect has over 500 daily flights to 73 destinations in India and abroad. The airline has 21 international destinations and 10 of these destinations are in the Gulf countries.
Etihad, a relatively new airline, has been growing by picking up minority stakes in various airlines across the world in recent years. The Abu Dhabi-based carrier owns a 10% stake in Australian airline Virgin Australia, a 2.89% stake in Ireland-based Aer Lingus, a 40% stake in Air Seychelles and a 29.1% stake in German carrier Air Berlin.