Abu Dhabi-based Etihad Airways has agreed to pay $379 million to acquire a 24 per cent shareholding in the Indian carrier Jet Airways.
Additionally, a wider overall commitment to Jet Airways by Etihad Airways includes the UAE-based airline injecting $220 million to create and strengthen a wide-ranging partnership between the two carriers.
As part of this, Etihad Airways has paid $70 million to purchase Jet Airways’ three pairs of slots at London Heathrow Airport through a sale-and-leaseback agreement, first announced on February 27. Jet Airways continues to operate flights to London Heathrow using these slots.
Additionally, Etihad Airways will invest $150 million by way of a majority equity investment in Jet Airways’ Jet Privilege frequent-flyer program, subject to regulatory and corporate approvals and final commercial agreements which the airlines expect to complete within the next six months.
Under the strategic partnership, which will be subject to full regulatory and shareholder approval, the airlines will gradually expand their existing operations and introduce new routes between India and Abu Dhabi.
They will combine their joint network of 140 destinations, with Jet Airways establishing a Persian Gulf gateway in Abu Dhabi and expanding its reach through Etihad Airways’ growing global network.
Passengers from 23 cities in India will benefit from direct connections to international destinations, according to Etihad Airways.
New flights from Jet Airways’ home hubs and metropolitan airports will further strengthen its current operations from these airports, Etihad says, adding that Jet Airways’ vision continues to be to develop New Delhi and Mumbai airports as its primary home hubs and connecting these hubs to Asian, European and other regions.
Etihad’s partnership with Jet Airways “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,” says James Hogan, president and chief executive officer of Etihad Airways.
“The Indian market is fundamental to our business model of organic growth partnerships and equity investments,” adds Hogan. “This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.”
“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 (FDI) into civil aviation in India,” says Naresh Goyal, chairman of Jet Airways. “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,” adds Goyal
A key component of the partnership will be expanded mutual codesharing on each other’s flights, with passengers receiving reciprocal ‘earn-and-burn’ rights in the airlines’ frequent flyer programs.
Etihad says the proposed codeshare expansion will significantly enable it to tap into India’s rapidly growing travel market, providing additional passenger traffic to Etihad Airways’ 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 travelers over the next five years, with the market growing at a rate of 10 per cent per year. The Indian middle class, which provides the majority of air travel demand, is forecast to grow by 200 million over the next eight years, according to Etihad.
Etihad Airways currently flies to nine Indian destinations – Delhi, Chennai, Mumbai, Kozhikode, Thiruvananthapuram, Hyderabad, Bangalore, Ahmedabad and Kochi – with a total of 59 flights per week.
The airline says its partnership with Jet Airways will also help drive a significant increase in traffic growth through Etihad’s hub at Abu Dhabi International Airport, as well as Jet Airways’ hubs of Mumbai and Delhi international airports.
Both airlines expect key benefits for each 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 consolidation of customer loyalty programs.
The two airlines will set up a joint project management office to ensure delivery of all synergy benefits to both parties.
Substantial ownership and effective control of Jet Airways will remain with Indian nationals, with Goyal as the Indian carrier’s non-executive chairman holding 51 per cent of the company.
Etihad Airways’ investment in Jet Airways follows minority equity stakes taken by the airline in Airberlin, Air Seychelles, Virgin Australia and Aer Lingus over the last 12 months.