Blackstone in talks for stake in Jet Air loyalty arm

Deal could value Jet Privilege Pvt Ltd at US$429mil

MUMBAI: Blackstone Group LP is in talks to buy a stake in the loyalty programme of Jet Airways India Ltd, the troubled Indian carrier that’s exploring options to raise cash, people with knowledge of the matter said.

The private equity firm has expressed interest in a deal that could value Jet Privilege Pvt Ltd at about 30 billion rupees (US$429mil) to 40 billion rupees, according to the people, who asked not to be identified because the information is private.

Jet Airways has been seeking a higher valuation for the business, which is part owned by the Indian airline’s partner Etihad Airways PJSC, one of the people said.

Etihad owns 50.1% of the loyalty programme, while Jet Airways owns the rest. The transaction being contemplated by Blackstone would see both Jet Airways and Etihad remain investors in Jet Privilege, another person said.

Any deal would be dependent on Jet Airways also securing adequate funding for its airline operations, according to the person.

There’s no certainty the deliberations would lead to an agreement, and other suitors could emerge for a stake in Jet Privilege, the people said.

Jet Airways is racing for funds as rising crude oil prices and intense competition in the Indian market eroded its cash amid losses.

The carrier said on Monday that it’s been evaluating funding options to meet liquidity requirements “on priority” and proactively working on multiple revenue enhancement and cost-cutting measures.

Jet Airways referred to its statement issued on Monday, saying reports on any move to monetise its investment in the loyalty programme are “purely speculative.”

Under the loyalty programme, frequent flyers of Jet Airways acquire so-called air miles, either by flying with the airline or spending on co-branded credit cards. Those miles can be accumulated to buy almost everything from air tickets to clothes and groceries at partner merchants.

Membership in the JetPrivilege loyalty programme grew 30% to 8 million customers in the year ended March 31. It posted a profit of 1.77 billion rupees in the latest financial year, according to Jet Airways’s annual report.

Etihad, which owns 24% of the Indian carrier, bought its stake in the loyalty programme in 2013 for about US$150mil.

Any cash from a stake sale would provide some respite for the Mumbai-based company, which faces 31.2 billion rupees worth of loan repayments due in the year through March 2019, according to ICRA Ltd.

The local unit of Moody’s Investors Service lowered the airline’s debt rating in May by a notch to BB+ with a negative outlook, a level that signals moderate risk of default regarding timely servicing of obligations, citing its inability to pass on increasing fuel costs to consumers.

Jet Airways’s lenders are reluctant to extend additional loans, and they preferred that the company raised money from a share sale instead before they would commit to any fresh credit, people familiar with the matter said earlier this week.

Banks are waiting for auditors’ endorsement of Jet Airways’s financial accounts after the airline delayed announcing its earnings last week, according to the people.

The carrier had total debt of 94.3 billion rupees at the end of March, according to data compiled by Bloomberg.

That’s equivalent to 55.4 times its earnings before interest and taxes in the most recent financial year, up from 4.9 times a year earlier, the data show.

The company needed as much as US$500mil in cash immediately and must refinance US$400mil of debt, backed by a guarantor, to keep the business sustainable, Kapil Kaul, South Asia CEO for CAPA Centre for Aviation, said earlier. — Bloomberg