03-Nov-2018 14:11:41

Jet airways Naresh Goel Tata Modi

Due to high debt, rising fuel prices, and a sluggish growth, the Jet Airways have been the least preferred among investors. With its shares declining more than 60 percent this year. Jet Airways is facing a cash shortage, resulting in salary delays. It has been looking to raise funds through venture sale in its loyalty programme and fresh issue of shares in the company. According to CNBC, Jet Airways’ net loss for the quarter, June 2018 stood at Rs 1,323 crore, worse than last quarter’s net loss of Rs 1,036 crore. The crisis escalated this month as it came to light that Jet is shortening its labour force: It removed employees from departments like engineering, security, and sales, according to media reports. Faced with monetary problems, Jet has been looking for ways to raise funds and stay in the air. Jet Airways is also reportedly trying to raise about Rs 5,860.4 crore from the sale and leaseback of its 16 aircrafts.

The Tata Group is targeting to purchase a bigger slice of Jet Airways. Citing sources aware of developments, The Times of India reported that it has held preliminary talks to buy a large stake in the struggling Jet Airways. Naresh Goyal’s Jet Airways, which has delayed the salaries of its pilots and may default on payments, is looking for an equity collaboration but Tata Sons seek management control, according to a report in The Times of India.

The Tata Group wants complete control over the management of the airline, reported ET. The Tata Group do not want to sign a deal where the Goyals retain controlling powers over operations. As of now, Goyal along with his wife currently own 51 percent shares in Jet Airways while Etihad Airlines owns a 24 percent stake in the company. There are chances that Etihad may also sell off its entire or partial stake in the company if Tata Group manages to bag a deal to buy a 26 percent stake in the company. A top official with knowledge about the deal confirmed the details of the initial meeting to ET.

Whether this deal works out or not, one thing seems clear: Tata Sons Chairman Natarajan Chandrasekaran is looking to boost the Group's aviation business through mergers and acquisition by bringing new guidance to AirAsia and Vistara. Moneycontrol reported that Tata Sons are also considering bringing aboard Aditya Ghosh, Former IndiGo employee, to head their aviation business. According to industry experts, if the deal is finalized, Jet Airways could be a better proposition for Tata’s than Air India. Jet Airways is the largest airline on international routes from India, and it has large network slots at some key airports.

“The problem with the aviation sector now is overcapacity. Tata may see an opportunity in this turmoil as they may get to acquire some good quality assets. In such a hostile (market) environment, acquiring a company will give them an opportunity to work out the synergies effectively,” said Ashish Nainan, research analyst for the aviation sector at rating agency CARE. Jet Airways will also provide a chance for the Tata’s to make an additional shot to build an airline they can truly call their own.

Overall, the Indian aviation sector is in a join. Even though, domestic air-passenger traffic has grown by at least 16% annually over the past decade, according to the Directorate General of Civil Aviation, this growth has been largely profitless, as stiff competition and passenger price sensitivity have forced airlines against raising prices.

Written by:

Sanat Singh