It’s been hard to avoid media speculation about Etihad Airways purchasing a stake in India’s Jet Airways over the past few months.
Well, it’s now official! Etihad Airways has just confirmed an equity investment of US$379 million for a 24% stake in Jet Airways.
“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,” commented Etihad Airways President and Chief Executive Officer, James Hogan.
“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.”
Under the strategic partnership, which will be subject to full regulatory and shareholder approval, the airlines will gradually expand existing operations and introduce new routes between India and Abu Dhabi, providing an ever wider choice to the travelling public.
They 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 global network.
Passengers from 23 cities in India will benefit from direct connections to international destinations. New flights from Jet Airways’ home hubs and metro airports will further strengthen its current operations from these airports. Jet Airways’ vision continues to be to develop Delhi and Mumbai airports as its primary home hubs and connecting them to Asian, European and other regions.
“The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world,” added Mr Hogan.
“We look forward to collaborating with Jet Airways and constructively working together with them and their stakeholders to build a sustainable, competitive and profitable airline.”
Etihad’s wider overall commitment to Jet Airways includes the injection of US$220 million to create and strengthen a wide-ranging partnership between the two carriers.
As part of this, Etihad paid US$70 million to purchase Jet Airways’ three pairs of Heathrow slots through a sale and lease back agreement announced on 27th February 2013. Jet Airways continues to operate flights to London utilising these slots.
Etihad and Jet Airways officials celebrate deal
An amount of US$150 million will be invested by Etihad Airways by way of a majority equity investment in Jet Airways’ frequent flyer program "Jet Privilege", subject to appropriate regulatory and corporate approvals and final commercial agreements (which are expected to be completed within the next six months).
Another key component of the wide-ranging partnership is expanded codes-haring on flights with passengers benefiting from reciprocal ‘earn-and-burn’ rights on the airlines’ frequent flyer programmes.
The proposed codeshare expansion will significantly enable Etihad Airways 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.
Key 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.
A joint project management office will be set up to ensure delivery of all synergy benefits to both parties.
“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,” stated Chairman of Jet Airways, Naresh Goyal.
“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.”
Etihad Airways’ investment in Jet Airways follows the minority equity stakes taken by the airline in airberlin, Air Seychelles, Virgin Australia, and Aer Lingus over the last 12 months.