Jet Airways may consider bidding for Air India

Jet Airways will consider bidding for Air India. “I think we need clarity on what the government’s position is. Once we get more clarity, we will have an opinion,” Vinay Dube, CEO, Jet Airways, told ET Online on the sidelines of an event in the capital last fortnight, on being asked if the airline is considering a bid. The government is expected to release the broad contours of Air India’s privatisation in the next few days.

This is the first formal statement from Mumbai-headquartered Jet Airways indicating it may be looking at Air India, besides its stated position so far of expanding on the back of the incoming brand-new Boeing-made 737 MAX planes. State-owned flag carrier Air India with a fleet of about 140 planes, including 43 owned Airbus A320s and 15 owned Boeing 777s that can fly non-stop to the US and Europe, commands 13% of the domestic and about 17% of the international market share.

Air India is being looked at closely by Jet, said a person aware of the matter who declined to be named, and the airline’s top brass has engaged in informal consultations with a doyen of India’s financial sector on the subject and is also looking at streamlining its finances.

This could be Jet’s second attempt to buy a rival airline in just over a decade, despite a weak balance sheet. Naresh Goyal-led Jet bought over Air Sahara in 2007 for Rs. 1,450 crore – an acquisition that deteriorated its finances, soured industrial relations, and dragged it into a prolonged court battle with the Sahara Group over the actual price of the buyout. Air Sahara has since been renamed JetLite and its operations merged mostly with the main brand Jet Airways.

As for Air India, the government is likely to hive off the unsustainable part of the airline’s Rs 50,000 crore debt, and together with its robust Rs. 25,000 crore annual revenue (with a significant dollar denominated revenue), this will make it attractive for many suitors. One aviation analyst who did not wished to be named estimated the airline could be worth Rs 25,000-Rs 40,000 crore depending on the terms offered by the government, including those related to debt and the future of its employees.

But most Indian airlines do not have a strong enough balance sheet to bid for Air India. Jet, for example, had a negative net worth of Rs 4,900 crore as of March 2017 and free cash of about Rs. 500 crore, according to data from ratings agency ICRA. To be fair, the government is already considering allowing airlines with negative net worth to bid for Air India.

Funding such an acquisition through debt will be difficult and will need equity. Jet, which had a debt of Rs. 12,600 crore in March 2008 saw its debt levels peak to Rs. 16,900 crore by 2009. Its positive net worth of Rs. 1,450 crore in March 2008 turned to a negative Rs. 85 crore by March 2010. The airline’s debt at the end of March 2017 stood at Rs. 12,800 crore.

As such, the key question is how Jet will manage the resources to fund an Air India buyout.

“Where did Mr Goyal get the money to buy out Gulf Air in the 1990s?” said New York-based former CEO of Jet Airways Steve Forte. “At the time many said it could not be done, yet he was able to raise the funds. Mr Goyal is a resourceful businessman. ”

Indeed in 1997, when the government suddenly changed foreign-airline investment rules, Goyal swiftly bought out Gulf Air and Kuwait Airways’ 40% stake in Jet Airways. Goyal can again lean on international or local partnerships to bid for Air India.

“You can never write him off,” Forte said.


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