The Jet Airways-Etihad deal, which may be announced before the year is out, would be interesting in more ways than one. Not only is Jet promoter Naresh Goyal expected to get technical knowhow and lucrative route partnerships along with equity infusion via this deal, sector experts and people with direct knowledge of the matter told Firstpost this deal may obviate the need for a tie-up that Jet has been trying to forge with Lufthansa AG.
With Etihad expected to pick up a minority equity in Jet, entry into Star Alliance may be scuttled permanently since the Alliance has never been keen on Gulf based airlines.
Another interesting thing to watch out for in any deal between Jet and Etihad deal is that this deal could mean Goyal issues fresh equity. One of the persons quoted above said he was referring to Goyal's ownership of Jet through Tail Winds, a company registered in the Isle of Man.
"Goyal is an NRI and he owns 100 percent equity of Tail Winds. You people say his ownership pattern violates the current foreign ownership rules but if that were true, how is his airline operating in India? I expect that if this deal comes through and etihad does agree to invest in Jet Airways, Goyal will issue fresh equity so that the money benefits the airline, not him personally," this person told Firstpost.
Another very senior government official said that Goyal, though violating the foreign ownership norms, has been allowed to continue with Jet since he was given a specific exemption in 2003.
"But now, when an equity deal is being worked out, I expect him to correct this anomaly," the official said.
There is no clarity yet on how much equity Jet is willing to offload to Etihad since negotiations are currently on between the two parties on the contours of the deal.
Jet shares rose about 14.3 percent tmid speculation that it may become the first Indian carrier to secure foreign investment. The government relaxed rules in September to allow foreign carriers to buy stakes of up to 49 percent in local airlines, which have been battered by fierce competition and high operating costs.
Kingfisher, which is currently grounded, was widely seen as the immediate beneficiary of this Government largesse but as it turns out, Jet and even low cost carrier SpiceJet may be the first two airlines to get foreign equity. SpiceJet is also seen talking to many foreign airlines for a possible stake sale.
Then, if the Jet-Etihad tie-up does happen, it could have a possible value of up to nearly $440 million. The senior official quoted earlier said the deal would involve "more than just equity infusion. It is being termed a strategic partnership. Goyal and Etihad promoter go back a long way".
A Reuters story earlier today said talks between Etihad and Jet, which has 100 planes and is India's second largest airline group by total passengers carried, have been the subject of recent media reports citing unnamed sources.
It quoted government sources to say that, "The talks are on. This is more or less final. It may take around a month and a half."
The senior government official quoted earlier said even if an agreement between Jet and Etihad is reached quickly, several steps would remain: getting approval of market regulator Sebi, seeking permission from the Foreign Investment Promotion Board (FIPB) and clearance from the home ministry from the security aspect.
Updated Date: Dec 20, 2014 14:10 PM