All you need to know about Jet-Etihad deal - Business Standard

It is good news on multiple counts as Abu Dhabi-based Etihad Airways has agreed to inject Rs 2,054 crore ($379 million) into Jet Airways. The massive investment in Indian civil aviation will translate into value for passengers, too. Overseas carriers can offer expertise, connectivity and convenience, besides funds. Simultaneously, it indicates intense competition among Indian carriers, at a time when they show some signs of emerging from the red. Aviation analysts say Jet would benefit from Etihad's strategic expertise, cheap financing and possible fuel import benefits in addition to the capital injection. The two airlines claimed that their combined global network would cover over 140 destinations and provide direct foreign connectivity to Indian passengers from 23 metro and non-metro cities. Etihad has been on an acquisition spree to compete with other Gulf airlines, mainly Dubai-based Emirates and Qatar Airways. It has negotiated stake purchases in four foreign airlines, including Air Berlin, Virgin Australia, Aer Lingus and Air Seychelles. Last year, Etihad was ranked as one of the best airlines in the world by World Travel Awards. The awards are considered the Oscars of the travel industry.  Bank of America Merrill Lynch and Credit Suisse advised Jet on the deal, while HSBC was the adviser for Etihad. Decoding The Deal Under the agreement, Jet and Etihad will explore joint purchasing opportunities for fuel, spare parts, equipment and catering supplies as well as external services such as insurance and technology support. This will be a major cost-saver for Jet, which has been reeling under high fuel costs. What it means for Jet .Stake sale to bring much needed fresh capital, help reduce debt marginally .Could now offer an alternative route for Indian passengers to fly to other West Asian, African cities and US, as well as Europe, apart from its current hub in Brussels .Can leverage Etihad's strong presence in Europe by bringing in Indian passengers through Abu Dhabi What it means for Etihad .Strategic investment enables Etihad to tap into India's fast-growing 42 million strong travel market.  .Will help it to expand its limited footprint in India and make Abu Dhabi an alternative hub (apart from Dubai) for Indian's travelling to US and Europe .Could tap passengers to fly to Abu Dhabi and onwards to the US or Europe now from over 53 cities from where Jet has services Effect on Air India and low-cost carriers .Analysts say alliance will have an adverse impact on Air India's business in the Middle East, US and Europe .Domestic LCCs say a code share between the two in domestic skies could have an adverse impact on their business Investors Long-term investors should stick to the shares of Jet as the company's more profitable international business will receive a major boost due to the synergies involved in Etihad checking in as a strategic investor. Shares in Jet Airways were trading up nearly 13% after gaining as much as nearly 20% on Wednesday. Win-win situation for passengers Aviation sector experts say the deal will benefit passengers as increased competition will bring down air fares. According to Captain Gopinath, the founder of erstwhile Air Deccan, the increased competition will lead to low air fares, besides bringing about improvement in the passenger amenities. The agreement will allow Jet passengers from 23 Indian cities to gain access to an expanded global network. The Indian carrier will enhance services from Delhi and Mumbai and introduce flights from Hyderabad and Bangalore. Jet, which serves 125 locations, including Abu Dhabi, Bahrain, Doha, Dubai, Jeddah, Kuwait and Muscat in the Gulf region, agreed in December to expand a code-share pact with Etihad, which operates services to nine Indian locations. Fuel costs India increased traffic rights for Abu Dhabi to 50,000 weekly seats from around 13,000 seats at present. This will enable Jet to use Abu Dhabi as a hub and connect Indian travellers to Europe and North America where Etihad has a strong presence. Using Abu Dhabi as a hub will also reduce Jet's fuel costs since it would get ATF at a cheaper rate in the oil surplus country. Fuel costs account for 42% of its net sales.   Government's role Media reports say the Indian government's involvement, including recent visits to the United Arab Emirates by finance minister P. Chidambaram and others, helped to assuage the worries of Etihad. Not just Chidambaram's visit, there has been government-to-government talks at various levels.The UAE wanted some assurances, which the Indian government has given them. Last year, India decided to allow up to 49% foreign ownership of airlines as part of reforms to help revive a slowing economy. More to come The deal sets a valuation benchmark for further investment in Indian airlines, with budget carrier SpiceJet Ltd frequently the subject of stake sale reports. IndiGo, the biggest carrier by domestic market share, is eventually expected to launch an initial public offering.  Malaysia-based AirAsia, Asia's biggest budget carrier, plans to launch a domestic start-up airline in India later this year through a joint venture with the Tata conglomerate. The planned airline is in the process of seeking permissions from various regulatory bodies for an airline licence. The airline is expected to be set up with an initial investment of $50 million. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNFmOhIe9n6q7C1m5JSU1951aBQuNg&url=http://www.business-standard.com/article/companies/all-you-need-to-know-about-jet-etihad-deal-113042500357_1.html

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