Etihad Airways, which owns a 24% stake in the beleaguered Jet Airways, may soon end up doubling its ownership in exchange for a desperately-needed cash infusion into the airline. Although Jet Airways dismissed talks about getting financial support from the Gulf carrier as “speculative” in a regulatory filing last week, the latest buzz is that its founder-chairman Naresh Goyal prefers a deal with Etihad over the one being discussed with Tata Sons.
Sources aware of developments told The Economic Times that Goyal and his team met with a top management team from Etihad, headed by Group CEO Tony Douglas, last Sunday. This was followed by long meetings with Jet’s management at Goyal’s Dubai residence. The daily added that Goyal is willing to consider handing over the operational reins to the Etihad in exchange for a fresh cash infusion through equity and soft loans, without relinquishing his chairmanship.
The deal being hashed out is expected to see Etihad injecting new equity into the airline, holding as much as 49% in the expanded equity base, while Goyal is open to his stake getting diluted from the current 51% to as low as 15%, depending on the extent of the cash infusion.
The cash-strapped airline reported its third consecutive quarterly losses for the quarter ending September, and is currently scrambling for funds to tide over a liquidity crisis that resulted in delayed salaries as well as payments to some vendors.
Given that the other deal in the works – the possible takeover by Tata Sons – will require Goyal to cede complete control, the Etihad option appears a far more desirable proposition for him.
Media reports earlier this month suggested that Tata Sons was mulling a two-step deal, where Jet could merge with Tata SIA Airlines Ltd – the joint venture between Tatas and Singapore Airlines that’s known by the brand name Vistara – through a share swap in the first phase, followed by Singapore Airlines buying out the Goyal family’s entire 51% stake in the new combined entity. Tata Sons is the investment holding company of the $103-billion salt-to-software conglomerate.
However, although Tata Sons last week confirmed that the Group is in preliminary talks with Jet Airways, its board is in no hurry to seal the deal. In fact, some of the board members reportedly urged Chairman N. Chandrasekaran and his team to appoint external consultants to aid in the due diligence process and make it as comprehensive as possible amid concerns of a jump in the airline’s liabilities. In the bargain, talks with Jet Airways have landed on the back-burner.
In any case, Etihad holds an edge over other potential investors in India’s second-largest airline. Citing a source the daily added that the Gulf carrier has the right of first refusal in case Goyal looks at a sale of shares – a key lever that can make or upend any deal.
26/11/18 Business Today