The Jet Airways-Etihad Deal: Examining the Pros and Cons
In the bustling world of the Indian aviation industry, Jet Airways, once a leading brand, finds itself in a critical situation. The airline's strategic move to align with Etihad Airways has sparked a wave of debate. This article delves into the intricacies of this deal, examining both the benefits and challenges.
Initial Challenges and Financial Struggles
It all began with a series of internal disputes and external financial pressures. Jet Airways, in an attempt to cut costs, announced salary cuts for its employees ranging from 10 to 50 percent. However, this strategy faced significant resistance from the airline's pilots, who are already grappling with a global shortage in the aviation industry. This internal conflict further compounded the airline's financial troubles.
Jet Airways defaulted on its debt payment of INR 8000 crores on January 1st, 2019, leading the ratings agency ICRA Ltd to cut its long-term rating on loans and bonds issued by the airline. Since the quarter ended March 2018, Jet Airways has reported three consecutive quarterly losses, each exceeding INR 1000 crore.
Balancing Oil Prices and Competition
Two primary factors can be attributed to the airline's severe financial condition: rising crude oil prices and intense competition. The global market's volatile crude oil prices result in higher operating costs, while the Indian aviation industry faces strong competition that restricts the airline from charging premium ticket prices, especially for last-minute bookings.
The Role of Etihad Airways
Etihad Airways, an Abu Dhabi-based investor, holds a 24 percent stake in Jet Airways. This significant investment has put Etihad in a position to influence the airline's future. Etihad Airways has proposed a resolution plan to SBI, the lead banker of the consortium of Indian banks involved in this case.
Etihad's Proposed Resolution Plan
According to Tiny Douglas, CEO of Etihad Airways, the airline is willing to invest $150 million to keep Jet Airways operational. In return, Naresh Goyal, the chairman of Jet Airways, has agreed to reduce his stake from 51 percent to less than 25 percent. This condition ensures that no single shareholder can issue an open offer to acquire more than 75 percent of the company. This move aligns with the FDI regulations, which state that a foreign company cannot hold more than 49 percent stake in an Indian company.
Additionally, Etihad Airways plans to increase its representation on Jet Airways' board, aiming to gain more control over the company's strategic decisions. This phase is pivotal in the airline's restructuring, as it prepares to either divest its stake or seek further investment.
Recent Developments and Future Outlook
Naresh Goyal has agreed to invest INR 700 crores on the condition that his stake is not reduced below 25 percent. This development marks a significant turning point in the Jet Airways-Etihad Airways deal. It reflects the complex balance between the need for infusions of capital and the preservation of existing ownership structures.
The Indian aviation market continues to grow rapidly, attracting new passengers and opening up new opportunities. However, the ongoing struggles of Jet Airways highlight the challenges that the industry faces. The success of this deal hinges on Jet Airways' ability to navigate these challenges and emerge as a strong and competitive player in the market.
In conclusion, the Jet Airways-Etihad Airways deal represents both a rescue attempt and a restructuring exercise. While it brings much-needed financial relief and strategic expertise, it also poses challenges in terms of ownership and control. The future of Jet Airways in the competitive Indian aviation market remains to be seen.