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
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
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.
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
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.
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.
ownership and effective control will remain with Indian nationals,
with Mr Goyal as the non-executive Chairman holding 51% of
Etihad is being advised by
HSBC, DLA Piper, Amarchand & Mangaldas & Suresh A. Shroff & Co and PricewaterhouseCoopers on this transaction,
Airways is being advised by Mr Harish Salve, Gagrats, ELP, Ernst &
Young, DSP Merrill Lynch Limited and Credit Suisse.
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