Etihad Airways is extending its equity investment-led expansion with the purchase of 24 per cent of India’s privately-owned Jet Airways in a transaction worth US$379 million as well as an injection of US$220 million to “strengthen” the partnership between the two carriers.
As part of this strengthening, Etihad Airways will purchase Jet Airways’ three pairs of Heathrow slots for US$70 million, which the Indian carrier will continue using on a sale and lease-back agreement. US$150 million will also be invested by Etihad Airways to take a majority equity investment in Jet Airways’ frequent flyer program Jet Privilege.
Regulatory and corporate approvals, and final commercial agreements are expected to be completed within the next six months.
Under the partnership the two airlines will progressively expand their existing operations and introduce new routes between India and Abu Dhabi. The carriers will combine their network of 140 destinations, with Jet Airways establishing a Gulf gateway in Abu Dhabi and expanding its reach through Etihad Airways’ growing network.
As with Etihad’s other investments, a key component of the partnership is expanded codesharing on flights with reciprocal frequent flyer benefits. The proposed codeshare expansion will enable Etihad Airways to tap into India’s rapidly growing travel market, providing additional passenger traffic to Etihads’ 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 cent a 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 currently flies to nine Indian destinations including Delhi, Chennai, Mumbai, Kozhikode, Thiruvananthapuram, Hyderabad, Bangalore, Ahmedabad and Kochi, with a total of 59 flights a week.
Benefits for both airlines will flow from synergies and cost savings in areas including fleet acquisition, maintenance, product development and training.
The airlines will 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.
Details of the investment were released by Etihad Airways president and CEO James Hogan, and Jet Airways chairman Naresh Goyal.
Hogan said the Indian market was fundamental to Etihad’s business model of organic growth partnerships and equity investments.
“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.
“This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.”
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.”
Etihad’s investment in Jet Airways follows equity stakes in airberlin, Air Seychelles, Virgin Australia, and Aer Lingus over the last 12 months.