Etihad is likely to buy 24 percent stake in Jet Airways between Rs 750-800 per share, which is at a premium to the current market price. There will be no major change in the management structure and Naresh Goyal will continue as chairman of Jet Airways but the Jet board will be expanded to make way for 3-4 seats for Etihad representatives.
Talking about the deal in an interview to CNBC-TV18, Kapil Kaul, CEO, South Asia CAPA believes the benefits to Etihad outweigh the benefits to Jet Airways. He further added, Jet is a very valuable asset especially in the market which is going to perhaps be the fastest growing market for next two to three decades.
Also read: Jet-Etihad deal may close tomorrow; stock up over 2%
Saroj Datta, former executive director, Jet Airways said, since Jet and Etihad have parallel routes, so one will now have to see how Jet, Etihad will integrate the parallel routes.
Below is the edited transcript of Saroj Datta and Kapil kaul's interview on CNBC-TYV18
Q: It seems like it is almost a done deal. It was a matter of getting the blessings from the government officials today and perhaps as early as tomorrow is when the deal will finally be inked. Take us through what this could really mean in terms of Jet Airways, for a company that was against foreign direct investment (FDI), that fought against FDI for years together and today it is finally made up its mind to go ahead with Etihad?
Datta: Jet Airways was the first one with foreign airline partner way back in 1993 when FDI or foreign direct investment in airlines in India was permitted. Jet Airways started its operations with Gulf Air and Kuwaiti Airways as business partners with 20 percent share each. It was only when the policy changed in April 1997 that Naresh Goyal had no option to buyback the shareholding of Gulf Air and Kuwaiti Airways. Since 1997 the FDI policy has been no foreign investment in domestic airlines in India.
Now that it has opened up and there is a requirement for funds for the Indian domestic carriers, at least for some of them. Also with Naresh Goyal's huge contacts and huge relationship with the Gulf Carriers has enabled him to push ahead with the possibility of an investment by Etihad in Jet Airways.
Q: This is going to be a game changer as far as the Indian aviation sector is concerned; there is no doubt about that. Who is it going to benefit more Etihad for getting into this lucrative market or Jet Airways at least for the time being getting this investment which is much needed?
Kaul: I would think the benefits to Etihad outweigh the benefits to Jet Airways. It seems that the money that they will get, about USD 330 million and there are other strategic benefits as we have mentioned in our report. However, Jet is a very valuable asset to have. It is not like acquiring any other asset. It has a 20 year old experience in India, over 100 million passengers, roughly about 116 planes, 3.4-3.5 billion dollar turnover.
As well access to large infrastructure and it is a technology driven company, so it is a very valuable asset in the market which is going to be perhaps the fastest growing market for next two to three decades. To get a foothold in a market like India which is just about couple of hours from your main hub and getting access to this huge pool of traffic.
So, it is extremely valuable for Etihad. As we mentioned in our report had Jet not made some strategic mistakes since 2004, they would not have gone because there is a strategic compulsion to get this deal done.
Q: We are now talking about synergies and there has been a lot of talk about joint sort of go-to market strategy on the part of Jet and Etihad, especially when it comes to the international routes, etc. Take us through what the possible synergies could be and how you see these two companies integrating operations more efficiently?
Datta: That is a very difficult question to answer at this point because we don't know the details of what the agreement between Jet and Etihad is going to say. In terms of either the management composition, board composition or the operations of the two airlines.
Q: On the basis of the information that we currently have which is that Naresh Goyal remains the Chairman, that the board will perhaps be expanded and there will be three to four representatives of Etihad on the board of Jet Airways on the basis of just the preliminary information that we currently have what would you say?
Datta: This basic information that you are talking of is very important but is not totally convenient to give an answer to your question because today Jet and Etihad have parallel operations on various routes. Etihad is operating to 10-12 domestic Indian points; direct services to Abu Dhabi. Of course those same services are going beyond to points in Europe, UK and North America.
So, how these parallel operations will be integrated is not something which I as an outsider of the company can make any serious comments on. It wouldn't be right for me to try and do that either.
Q: This is not just going to be a complex exercise from a regulatory point of view. We do know that there will have to be a substantial change as far as the shareholding pattern is concerned on account of what tailwinds owns. There is always this talk of synergies etc, but sometimes, it can go horribly wrong and this is going to be a complex one to put together, isn't it?
Kaul: If you look at the drivers for Etihad, it is that they would like to feed long haul flights and their other ambition is to create a travel hub for inter-continental travel from Abu Dhabi. According to the strategic blueprint of Etihad, it is largely to feed two objectives. There would be an integration of the networks and it would have to feed each other. It would make sure that there would be an alignment in the initial stages as close as possible and at a later stage, maybe closer. Those are essential details. Network alignment would be critical. What are the contours of the deal, what would be visible immediately, what could be visible later, that wouldn't be known. However, that is critical because they would want to feed traffic to their long haul flights and that is essential.
Q: Speaking of visibility, you also eventually see Jet Airways being de-listed?
Kaul: I think so. If at all Etihad goes up to 49 percent, I see a possibility of de-listing.
Q: Would you think that, that is an eventuality, that we will come to sooner rather than later?
Datta: Anything is possible. I don't think I would like to hazard a guess at this point.
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