Deal with Etihad: What it means for Jet Airways

New Delhi: On a day when Jet Airways has managed to get itself a rather good deal from Etihad Airways, at least in terms of valuation, it would be interesting to find out how this deal will alter the very face of Jet Airways. Till not very long ago, Jet (standalone as also when taken together with low-cost subsidiary JetLite) was India’s largest carrier.

It was only in February last year that IndiGo managed to usurp Jet from this coveted position. And there have been months when Jet, on standalone basis, slipped even below Air India in the domestic market.

Since then, not a lot has gone in favour of Jet and its promoter Naresh Goyal was probably fretting over the airline losing domestic market share almost continuously, debt piling up higher on the airline’s books and the Government indicating it was very serious about opening up the aviation sector to investment by foreign airlines.

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Goyal went about opposing the arrival of well funded global airlines which would make life for Jet even tougher. But then, in a very smart about turn, himself began negotiations with Etihad Airways for a possible equity tie-up, once he realised the policy had been eased on foreign airline investment.

The deal with Etihad, which was announced this morning, has seen several rough patches and there have been many a false alarms about it being done and sealed in the last several months. What may have finally worked in Goyal’s favour is the haste with which the Ministry of Civil Aviation agreed to open negotiations with Abu Dhabi, where Etihad is headquartered, on increasing weekly seat entitlements for the carriers of both countries by four-fold.

A team led by joint secretary Prabhat Kumar Singh is in Abu Dhabi since Monday night and has been conducting these negotiations despite stiff opposition from all stakeholders who fear such massive seat entitlements to Abu Dhabi will make other Indian airlines and expensive airport infrastructure uncompetitive.

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But for Jet, these negotiations are a lifeline. Because its very future seems to depend on two things: a profitable deal with Etihad which provides it much needed cash and permission to expand globally by making Abu Dhabi a major hub.

Airline sources told Firstpost that if it does get permission to offer 42,000 seats a week to Abu Dhabi, it will gain immensely:

[caption id=“attachment_724623” align=“alignleft” width=“380”] Who will head the board of directors and who all will run it operationally? Debarka Banik/Flickr[/caption]

1. Jet says the market size of traffic to and from countries to the west of India is about 28 million passengers per year. This includes traffic from the Gulf, Middle East, Europe, Africa and the Americas. “We want a share of this traffic. It is already growing a 10% per year and in three years, this traffic will become almost 40 million passengers.”

2. Jet says it is only looking to corner 10 percent of this traffic or four million passengers by 2015-16 but here’s the catch: this traffic will be ensnared by establishing a hub not in any Indian airport but at Abu Dhabi. Airline sources say making any large Indian airport a hub for this traffic makes little sense since the Gulf region is ideal location wise.

3. Jet wants to connect 23 points from India to the Abu Dhabi hub for onward connections so that it expands not only globally but also within the country.

4. For such massive expansion, Jet will obviously also need to buy more aircraft. The sources said it will get back 5 leased B777 aircraft from Thai Airways and Turkish this year. “Besides, we have a firm induction plan for 6 B737s over the next three years,” these sources said adding fleet expansion will be done through a mix of lease/buyback and outright purchase of aircraft.

5. Jet plans to continue with its existing hub operations at Brussels airport, from where it will route flights to Europe.

6. So in the new scheme of things, it will use a wide body aircraft to carry passengers from Delhi, Mumbai, Chennai and Bangalore to Abu Dhabi and then offer them onward connections to the Americas and other western markets. It will also use narrow bodies to offer nearby cities within the Gulf region and Africa from Abu Dhabi.

On the face of it, a deal with Etihad seems a godsend for Naresh Goyal financially. But several questions remain. Who will head the board of directors and who all will run it operationally? Though policy forbids foreign nationals from holding these key positions, they can always be manipulated by Etihad. Then, how much say will Goyal and his team have in operating an airline which seems to be now working as per wishes of Etihad and the Abi Dhabi carrier’s global ambitions. All these issues will become clear in the next few weeks.