Why Has Etihad Not Yet Acquired Jet Airways?

Etihad Airways, the national carrier of Abu Dhabi, has expressed interest in acquiring Jet Airways, India's second-largest airline. However, several factors have hindered this acquisition, including financial restructurings, regulatory constraints, and banking negotiations that have not yet concluded.

The Current Landscape of Jet Airways

Jet Airways, once a prominent player in the Indian aviation market, is currently facing significant financial and operational challenges. As of June 12, 2019, the airline had ceased operations and lost its critical engineering and maintenance certifications. This means that Jet Airways, as we knew it, is effectively dead.

Etihad's Stake and Recent Attempts

Etihad Airways currently holds a 24% stake in Jet Airways. Earlier, it was prepared to invest an additional Rs. 1,700 crores (approximately $250 million USD) but faced several hurdles. Etihad wanted the banks to write off at least 75% of their loans to Jet Airways, a condition the banks did not meet. As a result, Jet Airways continued to struggle with debt and regulatory issues.

Regulatory and Structural Challenges

One of the main obstacles to acquiring Jet Airways outright is a regulatory constraint. Etihad, being a foreign entity, is limited to holding no more than 49% of a foreign company. Therefore, any acquisition of Jet Airways would require the participation of an Indian partner to secure the remaining 51% shares.

The absence of a suitable Indian partner has stalled the acquisition process. Finding a willing Indian investor who can underwrite the risk and meet regulatory requirements will be a significant challenge. Moreover, the current financial situation of Jet Airways makes the acquisition a more complex endeavor. If Jet Airways were to be revived as a much smaller airline, potential investors may find the opportunity more favorable, as they could acquire the remaining shares for a fraction of the cost.

Etihad's Future Role and Investment Intentions

Even if Etihad decides to increase its stake in Jet Airways, the cost could be considerably lower than the initial investment. Given the current financial state of Jet Airways, Etihad would likely be willing to spend less to acquire an additional 25% of the shares. This reflects the diminished value of Jet Airways in the current market conditions.

Another factor to consider is the expected haircut for the banks. Given the current situation, banks are likely to take a significant loss on their loans to Jet Airways. A haircut of up to 80-90% is plausible, which means that Jet Airways might not be capable of paying back the full loan amount. This further complicates the acquisition process, as banks will need to write off a substantial portion of their loans.

Conclusion and Future Outlook

While Etihad has shown interest in acquiring Jet Airways, the current challenges are significant. The airline is facing severe financial and operational difficulties, which have been exacerbated by debt and regulatory issues. Therefore, Etihad has not yet made a firm commitment to complete the acquisition. However, if the banks and regulatory authorities can be brought to an agreement, and an Indian partner can be found, the acquisition may become a reality.

The future of Jet Airways remains uncertain, and any acquisition attempt will be closely watched by the aviation industry and investors.

Keywords

Etihad Airways, Jet Airways, Investment Opportunity