The board of Tata Sons is likely to meet on Friday to discuss a proposal to take over the Naresh Goyal-controlled Jet Airways which is looking for investors to tide over liquidity crunch that it has been saddled with, sources close to the development said.
Observers believe that Tata Sons chairman N Chandrasekaran will have a tough task convincing the board on a share-swap agreement kind of merger plan of Jet Airways with Tata-SIA run full-service
airline Vistara while eventually giving an exit to Jet’s promoter Naresh Goyal.
Talks of a Tata-Jet deal comes at a time when high fuel costs and currency losses are expected to push airlines deep into the red this fiscal with estimated combined industry losses pegged at `9,300 crore — worst in a decade for airlines in the country.
Jet’s deputy chief executive and chief financial officer Amit Agarwal had earlier this week 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.
A spokesperson of Tata Sons, which already runs two airlines — the full-service carrier Vistara in a JV with Singapore Airlines, and the low-cost carrier AirAsia India in JV with Air Asia of Malaysia — refused to comment on “speculation”, while Jet did not respond to queries on the same.
Besides Goyal, who along with his family owns a 51% stake in the carrier, Gulf carrier Etihad Airways holds 24% stake in the cash-strapped airline which earlier this week reported a `1,261-crore loss for the September quarter.
Tatas-owned airline joint ventures — AirAsia India and Vistara — have accumulated losses of over Rs 2,100 crore and these operations have not yet stabilised and are still in expansion mode, thereby needing more equity from the Tatas and their partners. The net worth of these two carriers has constantly eroded and Tatas and SIA infused Rs 2,000-crore equity in the venture last month.
This lays ground for tough convincing talks by Chandrasekaran to pitch for Jet Airways that has a gross debt of Rs 8,411 crore and other liabilities that are over Rs 11,000 crore with vendor payments that are not known yet, as well as lease rentals that are unpaid, all of which may make any acquisition an expensive proposition for the Tatas.
According to reports, the two sides are inching towards a two-step transaction that would first see Jet Airways merging with Tata-SIA through a share swap to form a new JV, which will have the Goyal family, Etihad, Tata Sons and Singapore Airlines as its partners.
Goldman Sachs is advising Jet Airways and sources indicate that the Tatas have approached Arpwood Capital to do the buy-side due diligence for them. Etihad is also tapping some non-banking institutions for a due diligence.
On Thursday, Jet’s shares stock closed up 24.5% at Rs 320.95 on BSE on reports of the deal with Tatas moving forward. This is the biggest gain for the stock since its listing on the BSE in 2005.