Etihad in talks to up stake in Jet Airways to 49%

Jet Airways are once again in news for the reasons related to Etihad. As per the report in Economic Times earlier today, the airline will be issuing convertible bonds worth $300-$400 million to pare down a part of its $1.7bn pile of debt. The transaction is expected to be finalized soon and would be potentially handing out Etihad a right to convert to up to 49% stake in the airline which is the maximum allowed stake for foreign airlines in the Indian carriers.

It’s no secret that Etihad acquired the 24% stake in the beleaguered airline only to tap easily into the lucrative Indian passenger market and technically turn
Jet into a feeder airline for its hub at Abu Dhabi. The strategy dubbed as the “Etihad Airways Partners” has enabled Etihad to buy small stakes in many airlines thereby helping it gain some goodwill in the local markets where it could not have been present by itself and use these partners to feed into its hub to fill up its planes. Not only has this destroyed the Jet Airways to grow its international network and potentially make some profit to offset domestic losses but it will be further setback for the local aviation market which is already reeling from high cost structure and an impossible regulation regime.

The deal if it goes through will prove to be very lucrative and perfectly priced for Etihad, especially after the setbacks it has had in Europe notably the court decision with regards to Air Berlin partnership. It is very bad that the airline which was once showing potential to take over the crown of a full service airline from other badly managed airlines such as Air India and Kingfisher has now itself ended up in a similar death spiral. It will be interesting to see if the transaction gets the regulatory approval given the current state of the aviation business in India and the promises by the government to revive the local market to stave off foreign competition.

What is your take on this deal if it goes through? Is it good or bad for the Indian market and its players? Let me know your views in the comments below.