Etihad Airways to Invest US$379 Million in Jet Airways

Etihad Airways has agreed to subscribe for 27,263,372 new shares in India’s Jet Airways at a price of INR754.74 per share.

The value of this equity investment is US$379 million and will result in Etihad Airways holding 24% of the enlarged share capital of Jet Airways.

Etihad Airways' wider overall commitment to Jet Airways includes the injection of US$220 million to create and strengthen a wide-ranging partnership between the two carriers.

As part of this Etihad Airways paid US$70 million to purchase Jet Airways’ three pairs of Heathrow slots through the sale and lease back agreement announced on 27 February 2013. Jet Airways continues to operate flights to London utilising these slots.

An amount of US$150 million will be invested by Etihad Airways by way of a majority equity investment in Jet Airways’ frequent flyer program "Jet Privilege", subject to appropriate regulatory and corporate approvals and final commercial agreements which are expected to be completed within the next six months.

Under the strategic partnership, which will be subject to full regulatory and shareholder approval, the airlines will gradually expand existing operations and introduce new routes between India and Abu Dhabi. They will combine their network of 140 destinations, with Jet Airways establishing a gateway in Abu Dhabi and expanding its reach through Etihad Airways’ growing global network.

Passengers from 23 cities in India will benefit from direct connections to international destinations. New flights from Jet Airways’ home hubs and metro airports will further strengthen its current operations from these airports, while Jet Airways’ vision continues to be to develop Delhi and Mumbai airports as its primary home hubs, connecting them to Asian, European and other regions.

Etihad Airways President and Chief Executive Officer, James Hogan, said, “We are pleased to have reached this significant stage in India with Jet Airways and are certain the partnership will bring significant benefits and opportunities for global growth to both airlines. It is expected to bring immediate revenue growth and cost synergy opportunities, with our initial estimates of a contribution of several hundred million dollars for both airlines over the next five years. The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.”

The Chairman of Jet Airways, Naresh Goyal, said, “I would like to thank the Government of India, especially the Ministries of Civil Aviation, Commerce and Industry, and Finance, for having the foresight to introduce the historic reform of allowing foreign direct investment into civil aviation in India. Infusion of FDI in the domestic sector will result in the improvement of the economics of aviation, grow traffic at our airports, and create job opportunities ... This transaction further strengthens the balance sheet of Jet Airways and, more importantly, underpins future revenue streams, which will accelerate our return to sustainable profitability and liquidity.”

A key component of the wide-ranging partnership is expanded codesharing on flights with passengers benefiting from reciprocal ‘earn-and-burn’ rights on the airlines’ frequent flyer programs.

The proposed codeshare expansion will significantly enable Etihad Airways to tap into India’s rapidly growing travel market, providing additional passenger traffic to Etihad Airways’ Middle Eastern, North American and European destinations, and give Jet Airways passengers from various cities access to an expanded network.

Current estimates predict the size of the Indian market to grow to 42 million travellers over the next five years at a rate of 10% per year, while the Indian middle class, which provides the majority of air travel demand, is forecast to grow by 200 million, over the next eight years.

Etihad Airways currently flies to nine Indian destinations including Delhi, Chennai, Mumbai, Kozhikode, Thiruvananthapuram, Hyderabad, Bangalore, Ahmedabad and Kochi, with a total of 59 flights per week.

The partnership will also help drive a significant increase in traffic growth through Abu Dhabi International Airport, as well as Jet Airways’ hubs of Mumbai and Delhi international airports.

Key benefits for both airlines will flow from synergies and cost savings in areas including fleet acquisition, maintenance, product development and training.

The airlines will also explore joint purchasing opportunities for fuel, spare parts, equipment and catering supplies, as well as external services such as insurance and technology support.

Other areas of co-operation will include joint training of pilots, cabin crew and engineers, as well as maintenance of common aircraft types and the consolidation of guest loyalty programs.

Substantial ownership and effective control will remain with Indian nationals, with Mr Goyal as the non-executive Chairman holding 51% of the company.

Etihad is being advised by HSBC, DLA Piper, Amarchand & Mangaldas & Suresh A. Shroff & Co and PricewaterhouseCoopers on this transaction, while Jet Airways is being advised by Mr Harish Salve, Gagrats, ELP, Ernst & Young, DSP Merrill Lynch Limited and Credit Suisse.