Etihad has made a shock last-minute bid to invest in Jet Airways, as reported by the India Times on Friday. However, the investment offer was not without conditions, with the airline’s money only available if they were not the only investor to come in on the struggling airline.
“Etihad Airways today confirmed its interest to re-invest in a minority stake in India’s Jet Airways, subject to conditions” – Etihad
How much is Etihad willing to invest?
At this stage, it is unknown exactly how much Etihad is willing to invest. We do know that Jet Airways is currently in over a billion dollars of debt, so any investment would need to go a long way to paying that off.
Indian airline ownership laws prohibit any foreign entity from owning more than 49% of a domestic airline. This means that Etihad, who already own 24% of the company, will not be able to pay more than another 25%. Thus if we assume that they will bring enough capital to maintain or increase their ownership to the maximum, we could estimate their offer is in the region of 250-500 million USD.
However, it was revealed last month on LiveMint.com that Etihad asked banks to reduce their repayments by 80% (also known as asking them to take a haircut). This will mean that the banks will lose plenty of money, but will recover at least 4/5ths of their investment.
What are the conditions of their investment?
Etihad has said that they will only invest more into the airline if another investor comes in too.
Etihad re-emphasizes that it cannot be expected to be the sole investor, and that, among other requirements, additional suitable investors would need to provide the majority of Jet Airways’ required recapitalization,”
The bank that is managing the investment on the airline (and its subsequent sell off of assets if they can’t find the money), SBI Cap, has said that a few other offers for the airline have also been received.
“Few unsolicited offers have also been received, which the lenders may deliberate upon subsequently,”
Additionally, Etihad has said that they don’t want to increase their stake in the firm up from 24%, meaning there is a possible 76% available on the table (24% which can be owned by a foreign firm).
At this time we don’t know who the other two offers are, how serious they are and whether or not they will save the company. We do know that recently the founder of Jet Airways promised to invest in $36 million into the airline.
If Jet Airways fails to find funding by this weekend, it is likely that much of its assets will be sold off to the highest bidder. Rival airlines are hungrily looking at their fleet of long haul aircraft and many former crew members have already made the switch to other carriers.
What do you think? Should Etihad invest further into Jet Airways or just cut their losses?