This Article is From Apr 24, 2013

Why the stake sale to Etihad is a win-win deal for Jet Airways

Why the stake sale to Etihad is a win-win deal for Jet Airways
Jet Airways today announced a decision to sell a minority stake to Abu Dhabi-based carrier Etihad Airways for Rs 2,060 crore. India's largest airline by market share said in a brief statement to the stock exchange that its board has approved the allotment of 27.3 million shares to Etihad at Rs 754.74 each on a preferential basis.

  1. Jet will raise Rs 2,060 crore from selling the stake, and will use the proceeds to pare its debt (estimated at around $2.16 billion).

  2. The deal gives Jet a partner with global expertise, which will help the Indian airline widen its network through code-share alliances. Etihad will likely cater to Jet's traffic to North America, Europe, Africa and the Middle East from Abu Dhabi, while Etihad's India-bound traffic will be operated by Jet flights from Abu Dhabi.

  3. Operational costs for Jet will fall as the deal may lead to a larger strategic alliance, such as sharing of engineering or airport services in both countries, instead of a simple stake sale.

  4. Jet will likely change its hub for cheap fuel. For its most recent reported quarter, ended December 2012, the airline's expenditure on fuel amounted to Rs 678.17 crore, a whopping 37.8 per cent of its total expenditure of Rs 1,809 crore. For the nine-month period ended December 2012, fuel costs increased 11 per cent year on year to Rs 5330 crore.

  5. The deal values Jet's share price at Rs 754.74, a steep 31.7 per cent premium to Jet's closing share price on Tuesday.