Abu Dhabi-based airline Etihad Airways may divest its 24% stake in Jet Airways by the year-end, said aviation consultancy CAPA in a tweet on Thursday.
Abu Dhabi-based airline Etihad Airways may divest its 24% stake in Jet Airways by the year-end, said aviation consultancy CAPA in a tweet on Thursday. “CAPA research indicates that Etihad may divest its 24% stake in @jetairways, possibly by Q3 of FY2019. This could lead to a rationalisation of capacity between India and the Gulf, particularly Abu Dhabi. #indianaviation,” the India twitter handle of the Sydney-based consultancy said. Kapil Kaul, chief executive officer-Indian Subcontinent & Middle East, CAPA, refused to comment or elaborate on the tweet. Jet Airways chairman Naresh Goyal did not respond to a message and Jet Airways did not respond to mails from FE till the time of going to press. An Etihad statement said, “The claims made in the CAPA report are false. Jet Airways is a valuable partner of Etihad Airways, and we have no plans to divest.”
CAPA does share internal inputs on strategic issues in the industry that will have significant possible implications. It also provides independent market intelligence to aviation companies globally, but its reports are confidential. The UAE-based airline had bought a minority stake in Goyal-promoted Jet Airways in the year 2013 for about $379 million, the first such share purchase in India after the government allowed foreign airlines to pick up to 49% stake in domestic carriers. Etihad had not only invested money in buying into Jet’s equity, at a premium to Jets prevalent share price then, but it also paid $220 million to Jet towards monetisation of its frequent-flier programme and for Jet’s slots at Heathrow airport in London.
The Middle Eastern airline had bought a 24% stake in Jet for what translated to about Rs 2,050 crore then. Experts feel that if Etihad is to exit Jet in the current market, it will have to take a major haircut. What’s more, they don’t believe Goyal will buy back the shares given Jet’s financial position. Jet’s present market capitalisation is Rs 8,422 crore and to purchase Etihad’s 24% stake at the current valuation, a buyer will need to expend Rs 2,105 crore. If Jet is to provide Etihad an exit, it will have to look for an equity partner to pick up the stake. There will definitely be some interest from international carriers, may be even from the ones Jet presently partners, said an aviation analyst. The other alternative would be a large private equity investor.
Industry insiders feel that the partnership has run its course and that the dynamics have changed for Etihad. “It is a different trough and geo-politics in the UAE today, with different alignments. Also, volatile oil prices are playing a major role in Etihad’s evaluating its strategy,” said an industry expert not wanting to be quoted. In its initial phase of expansion, Etihad had aggressively bought into stressed airlines like Italian Alitalia and Air Berlin, besides a struggling Jet Airways. “Etihad’s exit can be seen as an exercise of cleaning up, as they have lost money on these aviation bets and this strategy does not stay relevant for it any longer,” said an aviation expert.
There have been periodic reports of a souring relationship between the two airlines, but any such development has been refuted time and again by both the carriers. In 2015, a nominee of Etihad on Jet Airways’ board, Cramer Ball, resigned as CEO. Since then, the relationship has gone downhill with Jet fearing that Etihad was trying to wrest control, said sources on condition of anonymity. The operational tightening by Etihad was apparently resented by the Indian management, they added.
Recently, in 2017, Jet forged two major alliances with international carriers, US-based Delta, and Air France-KLM. Both these airlines directly compete with Etihad on international routes. One part of Etihad’s strategy was to make an investment in an Indian carrier as a feeder airline for its international flights via Abu Dhabi. Both these alliances directly challenged this premise, as these alliances were based on the principle of metal neutrality, which means that revenues will be shared between the airlines irrespective of whose aircraft was used, a first in Indian aviation.
Goyal, following this agreement, had said that the arrangement will not impact Jet’s existing partnership with Etihad, and both the airlines have maintained this position. But for some time now, Jet’s Gulf operations have been under pressure, as the airline has been trying to maintain volumes despite an impact on yields, because of Etihad’s alliance.