Why would anyone pay Rs 4 for something everyone knows is available for Rs 3 in the nearby shop?
This seems to be an important sticking point in what could be a lifesaver for Jet Airways, which is reported by The Economic Times to be negotiating with Abu Dhabi-based Etihad to sell a stake in the airline.
According to the newspaper, Jet wants Etihad to value it at $800 million (around Rs 4,300 crore). Etihad wants to pay half that amount, since the market value of Jet shares are currently around Rs 3,100 crore.
If the deal comes through, it will be the first airline to receive foreign investments post the cabinet’s decision to allow a 49 percent stake for foreign airlines on domestic carriers.
The problem for Naresh Goyal, boss of Jet Airways, is that he has a weak bargaining position. While Jet is not quite the basket case that Kingfisher is, it had ratcheted up losses of Rs 1,236 crore last year, despite many financial engineering deals involving sale-and-leaseback of aircraft.
Worse, it has ceded market leadership to IndiGo. In August, as Firstpost reported yesterday, IndiGo had a market share of 27.6 percent against the combined market share of 25.2 percent for Jet and its low-cost carrier JetLite.
Jet Airways, which is India’s oldest private airline, has been struggling to cut losses. Firstpost had earlier reported that the airline was advised to do away with first class on international routes as well as restructure economy class seating on its long haul flights in order to cut losses and maintain a healthy balance-sheet.
Clearly, Jet’s management does not hold the high cards with Etihad. Etihad can take its pick – a stake in the market’s No 2 at a lower price, or a stake in a smaller airline (SpiceJet)for an even lower price.
Meanwhile, even as domestic air traffic continues to fall, close to 12 lakh passengers chose to fly IndiGo against 8.16 lakh who flew Jet Airways and 2.85 lakh who chose JetLite.