Normally, In this space, we avoid speculating much. There have been countless rumors about Jet Airways finding an outside investor who would provide it some money. There have been names like Tata’s, Delta and Etihad been dropped.
As I have written about Jet Airways end coming here and here. Jet has been closing destinations very quickly and a lot of flights are getting grounded.
For a while, it appeared that Etihad would be the shining knight in the armor for Jet Airways. It was about to happen until as rumored, Naresh Goyal, the founder, and owner of Jet Airways refuse to step down from the authoritative role. Since the arrival of Mr. Vinay Dube, Jet Airways tried to be more connected to Delta/KLM and it has failed miserably and is absolutely in shambles.
Etihad offer to get out
Here is the offer from Etihad, as per Economics Times NOW:
- Etihad will sell their entire 24% in Jet Airways to Indian banks (State Bank of India is the major bank involved) who have loaned money to Jet Airways.
- Etihad just wants INR 150 per share as their price to sell, which is just 23% of the price they paid when Etihad entered Jet Airways at INR 650 per share (Jet Airways share price today is INR 228)
- Etihad wants a total of INR 400 Crores (US Dollars 58 Million) towards their stake in Jet Airways being bought out, valuing the airline at about INR 1800 Crores (US Dollars 260 million)
- Etihad is also willing to sell back JetPrivilege to the lenders or Jet Airways.
- The Abu Dhabi carrier’s 50.1% stake in Jet Privilege is estimated to be worth Rs 1,000 crore.Â
Why Etihad might want out?
Etihad recently lost over 4.8 Billion USD over the last 3 years and wants to stop the bleeding quickly. Though Etihad is Abu Dhabi govt. backed airline. However, the Government isn’t in high spirits either. There is an economy on a downturn in the United Arab Emirates which is further aggravating the situation. Plus Etihad has decided not to help Alitalia, Air Berlin, and Air Seychelles either.
Etihad has learned from its previous mistake. The only way they want to give more money in Airline is when they have full control over operations. Nobody wants to put money in the airline when they have no say over how their money is utilized.
We are not a political blog but it is global news that political situation of UAE has a major impact on economy and jobs. They don’t look as green with wealth as assumed.
- UAE lost 2 major trade partners – Qatar and Iran in the same year. The effective closure has created a major crisis and a loss of $21 Billion
- Stock Market is having the worst year since 2008
- Fall of Rupee and Rise in oil prices also ended up creating a trade deficit with UAE with India. Thanks to mutual acceptance of the currency, Indians are even able to swipe their credit cards in Rupees in UAE.
- UAE in exchange improved the Trade Free Zone policies and is making easier for business to bring in wealth locally to entice more International wealth.
- UAE was expanding at a pace that it somehow couldn’t keep up with.
- There are more hotels rooms, real estate
Etihad Problem with Jet Airways Loan
Etihad became a guarantor for Jet Airways at HSBC Dubai. Jet Airways has defaulted on $31 million on March 11 and has to pay $109 million by March 28. The total $140 million loan it had taken from HSBC Bank Middle East, in which Etihad was a guarantor.
Jet had also defaulted on its earlier payment of $31 million to HSBC as part of its external commercial borrowings. With the SBI-led resolution plan yet to see the light of the day, Jet Airways is likely to default to another tranche.
Jet would have to pledge 15 percent of the total share capital of Jet Privilege Pvt Ltd in favor of HSBC as primary/first lien security for the $150-million facility (current outstanding of approximately $140 million) extended by HSBC to Jet Airways under the terms of the 2014 agreement. Of course, Etihad who owns 51.1% of Jet Privilege LTD. is tied up with this and may lose a certain amount of their equity in this.
Conclusion
I understand the problem on Etihad end. However, this may be a ploy to finally get what they want out of the deal if it plans to infuse any money. However, I won’t be surprised if Etihad lets Jet sink.
