Etihad keen to invest in Jet Airways, but held back by its own troubles

Even as talks to infuse liquidity into the struggling Jet Airways enters the final stage, Etihad Airways — the critical player in the whole deal — is being held back by some trying circumstances the airline itself is facing.

Many of Etihad Airways’ troubles mirror that of its Indian peer, in which it holds 24 percent stake. The international airline has now gone two years without profits, and this may extend to one more year. Many of its investments have turned sour, and it may have to end up paying two billion euro in fines for one of them.

And in the latest sign of tough times, Etihad Airways may layoff up to 50 of its 2,065 pilots. This has surprised many. “Airlines usually don’t lay off of their pilots. This reflects the position it is in,” said a senior executive from the industry.

One more of Etihad Airways’ investments could go bad. And that is the Rs 2,069 crore it invested in Jet Airways in 2013 for a 24 percent stake.

Jet Airways has now gone through three consecutive quarters, incurring over Rs 1,000 crore in losses in each. Reports suggest the airline’s lessors and MRO (maintenance, repair, overhaul) partners are losing patience over non-payment of dues. And its lenders are now wary of a Kingfisher-like situation after Jet Airways defaulted on loan repayments in December.

Kingfisher, whose founder Vijay Mallya is fighting extradition in London courts, owes over Rs 9,000 crore to banks. Jet Airways dues are almost as big, with a total debt of Rs 8,000 crore. The airline also faces stiff repayment schedule and needs to make a payment of Rs 1,700 crore to banks by March.

The lenders, led by State Bank of India, have now sat down with Etihad Airways officials. The three sides, including Jet Airways, are now trying to come to a deal that will meet each of their conditions.

Etihad Airways is not taking any chance now. It had invested in seven airlines globally. Two of them – Alitalia and Air Berlin – have filed for bankruptcy.

Its investment in Jet Airways has also seen a considerable loss in value. Despite the spurt in its stock in the last two days, on news of its fund raising talks with Etihad Airways, Jet Airways’ share price at Rs 306 is still trading 50 percent lower from the Rs 750-level last seen in 2013. That was the year when Etihad Airways bought stake in Jet Airways.

Etihad Airways has agreed to increase its stake in Jet Airways. But with capital now scarce, the conditions it has put are tough.

The toughest being the role of Jet Airways founder Naresh Goyal. Etihad Airways now wants operation control over its Indian partner, and that can only happen once Goyal lets go. The founder holds 51 percent stake in Jet Airways. Reports say he may dilute his shareholding to 25 percent, but may retain a seat on the board.

The final word may come on January 16, when Jet Airways meets its lenders.

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