As reported here some months ago, Etihad Airways has confirmed its purchase of a 24% stake in Jet Airways for $379 million. The UAE carrier has agreed to subscribe for 27,263,372 new shares in Jet Airways at a price of INR754.74 per share.
Etihad Airways' wider overall commitment to Jet Airways includes the injection of US$220 million to create and strengthen a wide-ranging partnership between the two carriers.
As part of this Etihad Airways paid $70 million to purchase Jet Airways’ three pairs of Heathrow slots through the sale and lease back agreement announced on February 27, 2013. Jet Airways continues to operate flights to London utilising these slots.
An amount of $150 million will be invested by Etihad Airways by way of a majority equity investment in Jet Airways’ frequent flyer program Jet Privilege, subject to appropriate regulatory and corporate approvals and final commercial agreements which are expected to be completed within the next six months.
Under the strategic partnership, which will be subject to full regulatory and shareholder approval, the airlines will gradually expand existing operations and introduce new routes between India and Abu Dhabi, providing an ever wider choice to the travelling public. They will combine their network of 140 destinations, with Jet Airways establishing a Gulf gateway in Abu Dhabi and expanding its reach through Etihad Airways’ growing global network.
Passengers from 23 cities in India will benefit from direct connections to international destinations. New flights from Jet Airways’ home hubs and metro airports will further strengthen its current operations from these airports. Jet Airways’ vision continues to be to develop Delhi and Mumbai airports as its primary home hubs and connecting them to Asian, European and other regions.
“We are pleased to have reached this significant stage in India with Jet Airways and are certain the partnership will bring significant benefits and opportunities for global growth to both airlines,” says Etihad Airways President and Chief Executive Officer, James Hogan. “It is expected to bring immediate revenue growth and cost synergy opportunities, with our initial estimates of a contribution of several hundred million dollars for both airlines over the next five years.”
He added: “The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.”
Chairman of Jet Airways, Naresh Goyal, praised the Indian government for allowing foreign direct investment into civil aviation into the country, which he said will improve the economics of aviation by increasing traffic at Indian airports and create job opportunities.
“This transaction further strengthens the balance sheet of Jet Airways and, more importantly, underpins future revenue streams, which will accelerate our return to sustainable profitability and liquidity,” says Goyal. “I have no doubt that this partnership with Etihad Airways is a win-win situation for all our stakeholders, especially our guests, who will now have access to a much expanded global network.”
One of the main components of the partnership is expanded codesharing on flights. The proposed codeshare expansion will enable Etihad Airways to tap into India’s rapidly growing travel market, providing additional passenger traffic to Etihad Airways’ Middle Eastern, North American and European destinations, and give Jet Airways passengers from various cities access to an expanded network.
Current estimates predict the size of the Indian market to grow to 42 million travellers over the next five years at a rate of 10 per cent per year, while the Indian middle class, which provides the majority of air travel demand, is forecast to grow by 200 million, over the next eight years.
Etihad Airways currently flies to nine Indian destinations including Delhi, Chennai, Mumbai, Kozhikode, Thiruvananthapuram, Hyderabad, Bangalore, Ahmedabad and Kochi, with a total of 59 flights per week.
The partnership will also help drive a significant increase in traffic growth through Abu Dhabi International Airport, as well as Jet Airways’ hubs of Mumbai and Delhi international airports.
The airlines both note key benefits to be gained from synergies and cost savings in areas including fleet acquisition, maintenance, product development and training.
The airlines will explore joint purchasing opportunities for fuel, spare parts, equipment and catering supplies, as well as external services such as insurance and technology support.
Other areas of co-operation will include joint training of pilots, cabin crew and engineers, as well as maintenance of common aircraft types and the consolidation of guest loyalty programs.
Substantial ownership and effective control will remain with Indian nationals, with Goyal as the non-executive Chairman holding 51% of the company.
Etihad Airways’ investment in Jet Airways follows the minority equity stakes taken by the airline in airberlin, Air Seychelles, Virgin Australia, and Aer Lingus over the last 12 months.
Etihad is being advised by HSBC, DLA Piper, Amarchand & Mangaldas & Suresh A. Shroff & Co and PricewaterhouseCoopers on this transaction.
Jet Airways is being advised by Harish Salve, Gagrats, ELP, Ernst & Young, DSP Merrill Lynch Limited and Credit Suisse.
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