Jet-etihad: Changing the game rules?

If Jet-etihad merger happens, this would be the first foreign airline investment transaction in Indian aviation since the long-awaited approval granted by the Indian Cabinet in September 12, 2012. reports...

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to a CAPA report, allowing foreign airline investment is an important step in establishing a more professional aviation sector in India. Such investment not only brings strategic capital and expertise into the market, but as a result of its presence, other institutional funding may also feel more confident about investing alongside. cant strategic mistake, the acquisition of Air Sahara. Integration of the two carriers proved to be far more challenging than anticipated and drained capital which made the airline vulnerable. As a result Jet Airways’ customer proposition has been deteriorating which, up until the last few years, was acclaimed for its high standards.

Most likely are changes at the senior management level of Jet Airways, much deeper codesharing and schedule coordination

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• enue in excess of USD3.4 billion in FY12/13; Combined Jet Airways/JetLite fleet size of 116 aircraft; 20 years of experience during which time it has carried over 100 million passengers; Access to scarce infrastructure, particularly in the key premium market of Mumbai; Operation of India’s leading loyalty program.

The two airlines have links that go back several years when several Jet Airways executives assisted in the setting up of the UAE carrier, and more recently a successful codesharing arrangement.

Jet Airways may also choose to directly import aviation turbine fuel from Abu Dhabi to circumvent the onerous sales taxation on local purchases. For Jet, the deal also provides multiple benefits including an infusion of cash for debt reduction and to provide capital for growth; access to a large global network; scale economies for procurement and the ability to tap into a large pool of experienced management.

SpiceJet could be next off the block and is understood to be in advanced discussions with more than one party, including reportedly an aggressively expanding Southeast Asian LCC, as well as private equity funds. A deal could be announced before March 31, 2013. GoAir is another potential candidate and it too is in discussions with foreign airlines.

Minister Ajit Singh and the Government of India deserve credit for permitting foreign airline investment, an issue which was mired in considerable political complexity.

The national carrier has in the last six months shown a substantial improvement in financial and operational performance, but has suffered a major set-back with the grounding of the B787 this month. At present the government’s position is that Air India is not open to a strategic partnership with a foreign carrier. The government will need to commit to a major financial restructuring of the flag carrier before such an option can be considered.

With aviation viewed in the UAE as a critically important tool of economic development, Etihad and other carriers from the region are likely to have a higher risk appetite. An investment by Etihad in Jet Airways, although just the first step, would be a defining moment in the development of India’s aviation sector.