Etihad holds first class ticket for Jet’s tailspin

Air Berlin

03/01/2019 02:52

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Una Galani
    MUMBAI, Jan 3 (Reuters Breakingviews) - Naresh Goyal could
be ejected from the cockpit. The founder of Jet Airways  JET.NS 
is edging closer to losing control of the Indian company after
it revealed on Tuesday that it had missed a payment to lenders.
They are unlikely to extend more credit to the carrier until it
secures a cash infusion. Its second largest investor, Abu
Dhabi’s Etihad Airways, could be setting the course.
    Jet is struggling to turn things around as it grapples with
cutthroat competition. Rivals with lower operating costs are
keeping fares low in one of the world’s fastest growing aviation
markets. After another 6 percent fall in the shares on
Wednesday, Jet’s market value has plunged 70 percent in the past
year, leaving it worth less than $460 million. 
    Etihad has been on board for the awful ride. In 2013, it
injected about $600 million for a 24 percent stake and control
of the airline’s frequent flyer programme. Goyal is now trying
to monetise Jet Privilege and sell aircraft in a bid to raise
money. Jet shares are trading at a third of the price Etihad
paid.
    In some ways, Jet looks as bad as other investments made by
the state-owned Abu Dhabi carrier as part of a failed strategy
backing second-tier European airlines. That ended with the
bankruptcies of Air Berlin  AB1.F  and Italy’s Alitalia. It is
one reason that Etihad might think twice about rescuing Jet with
loan guarantees or a cash infusion.
    Yet Etihad’s intentions for Jet always seemed different.
India is a large neighbouring market that can provide a strong
feed of passengers to the Gulf carrier’s long-haul hub. It might
be worthwhile keeping a firm grip on Jet if Etihad can take its
stake up to the maximum permitted 49 percent and remove Goyal,
the influential chairman, from positions of power.
    If Etihad doesn’t act, it must consider the possibility that
rival Singapore Airlines  SIAL.SI  could step in as part of a
deal led by Tata Sons. The Indian conglomerate wants to expand
in aviation and has held preliminary talks with Jet. For now,
though, Etihad holds the first class ticket for Jet’s tailspin. 
    On Twitter https://twitter.com/ugalani
    
    CONTEXT NEWS
    - India’s Jet Airways said on Jan. 2 it had delayed payment
to a group of banks “due to temporary cash flow mismatch”,
adding that it was is in talks with the lenders. The company’s
shares fell 6 percent.
    - Jet and its second-largest shareholder, Etihad Airways,
were in talks with bankers on a rescue deal that might involve
the Abu Dhabi-based airline increasing its stake from 24
percent, Reuters reported in early December.
    - On an earnings conference call on Jan. 1, Jet Deputy Chief
Executive and Chief Financial Officer Amit Agarwal said the
company was exploring the sale of aircrafts, monetisation of its
loyalty programme and a fresh liquidity infusion.  
    - Jet has lost almost 70 percent of its market value over
the past year, leaving it at about 31.9 billion rupees ($459
million).    
    - For previous columns by the author, Reuters customers can
click on  GALANI/   
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
India’s Jet Airways defaults on debt payment to banks   
 urn:newsml:reuters.com:*:nL3N1Z20H6
BREAKINGVIEWS: M&A can bring relief to Asia’s crowded skies   
 urn:newsml:reuters.com:*:nL4N1XU1Q2
BREAKINGVIEWS: India could clear flight for Singapore Airlines  
  urn:newsml:reuters.com:*:nL4N1XP157
BREAKINGVIEWS: India’s Jet can redeem some airmiles to ease pain
    urn:newsml:reuters.com:*:nL3N1VJ16K
Jet statement    https://www.bseindia.com/xml-data/corpfiling/AttachLive/fcb1cd33-0c17-4bf2-80a6-269efd43c417.pdf
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Katrina Hamlin)
 ((una.galani@thomsonreuters.com;  Reuters Messaging:
una.galani.thomsonreuters.com@reuters.net))