A deal to acquire Jet Airways may be in the making, now that Tata Sons has clarified that it is holding preliminary discussions with Jet Airways for a possible investment in one of India’s once-high-flying airlines.
Analysts expect an open offer from the Tatas shortly, maybe as early as Monday. They added that Jet Airways founder and chairman Naresh Goyal — who holds 51% — may have to exit completely to allow the Tatas and their partner Singapore Airlines (SIA), a free hand to run the airline or merge it with Vistara.
“No one can have a free ride with the Tatas. They would like to have full control of Jet. In the Jaguar Land Rover deal, they did not allow Ford to keep a minority stake of 5%. Going by this example, Mr. Goyal needs to exit,” said Mark Martin, CEO, Martin Consulting.
“The Tatas admitting that discussions were at a preliminary stage is enough indication that they are keen on this deal and they must have completed due diligence. An open offer for Jet is likely any time from Monday to Christmas,” Mr. Martin said.
He said, “While the Tatas will lead the investment, SIA will put it to shape. It will be the most aggressive comeback of [the] Tatas in aviation.” Going by past experience, the Tatas will move swiftly to close the deal.
In August 2012, they had denied to The Hindu any possible re-entry into the airline business, but announced two airline JVs (AirAsia India with AirAsia Bhd and Vistara with Singapore Airlines) within months.
‘Assets an advantage’
Analysts said Jet had run up ₹8,052 crore in debt as of September 2018, but “it is a good buy” considering the “soft and hard assets” it has.
Its cost structure may be seen as a disadvantage; it has an order pipeline of 225 Boeing 737 Max planes, a large maintenance facility in Mumbai, an army of traditional travel agents and a workforce of over 16,000 employees.
Currently it operates 124 aircraft, including 16 that it owns. “The Tatas are getting a very good asset at a very good price,” Mr. Martin said.
The market capitalisation of Jet was ₹3,940 crore as on Friday. “It will be a strategic valuation, not based on marketcap. It is all about what the buyer will do with the acquisition and how much control premium they would pay to Mr. Goyal,” said KG Vishwanath, director & partner, Trinity Aviation Consultants.
But post acquisition, the road ahead would be bumpy as IndiGo will keep the pressure on with low fares.
“Apart from the buy, how much incremental money the Tatas would pump in to run Jet for the next 12-18 months would be crucial. IndiGo will put pricing pressure for the next 3-4 quarters,” he said.
Though the contours of the deal are still not known, what is clear is: cash needs to come to Jet; the Tatas want full control; and SIA will not coexist with Etihad that owns 24% of Jet. “Overall consolidation is positive [for] the industry,... there is limited market for three full-service carriers and rationalisation is likely,” said Kapil Kaul, CEO, South Asia, CAPA.
What will Mr. Goyal’s future be in Jet Airways?
“The Tatas, by nature, are not as harsh as MNCs and Mr. Goyal can work with them in an advisory/ mentor role with a hefty salary and he has had good relationship with the Tatas. He is the best-networked airline owner and can add lot of value,” an analyst said.
It was JRD Tata who inaugurated Jet’s first flight in May 1993 to encourage a young Mr. Goyal. Now, the Tatas may board Jet permanently to keep it flying.
