According to a senior Jet Airways executive, when the deal is completed, the airline might shift its international base from Brussels to Abu Dhabi, Etihad's base. The Indian airline would also be able to widen its network through code-sharing and gain access to fuel at a much reduced cost. Its cargo business could also benefit.
Etihad CEO James Hogan said last week that he plans to present the proposed buy to his board of directors following the conclusion of due diligence. Given earlier investment cases, it appears unlikely that the body would reject such a proposal.
“We are keen to enter the Indian market,” Hogan says. He confirmed that he met with government officials earlier this month to discuss foreign direct investment and talk about “what is going to happen in the domestic market” in terms of the ability to pass along fuel surcharges, among other issues. “A strong domestic market is key if we are going to have a long-haul relationship with an Indian carrier.”
Hogan believes Jet Airways' economic troubles are linked to domestic competition and “domestic rules of doing business,” but that the airline has a “great management team” that shares the Abu Dhabi-based carrier's dedication to providing good service.
Etihad has been weighing investment opportunities in India for months. Along with its 24% stake in Jet Airways, valued at around $300 million, it also was considering the grounded Kingfisher Airlines.
For Jet Airways founder Naresh Goyal, a self-made businessman, the Etihad investment is a turning point. While foreign investors (Kuwait Airways, Gulf Air) owned part of Jet briefly in the 1990s, they had to sell following a policy change that was implemented to protect Air India from foreign takeovers. Goyal never relinquished full control of his airline, even after the carrier's initial public offering in 2005. Now he does not have a choice: Jet Airways, while not nearly in as desperate a state as Kingfisher and not nearly as strangled by political interference as Air India, needs capital, not the least to grow its international business.
Etihad, besides gaining access to India's domestic market, has the potential to channel some of it long-haul traffic through its growing Abu Dhabi hub. However, such connections cannot replace direct long-haul services from India to Europe when the routes are big enough. Etihad has been trying to channel Air Berlin's Asian traffic through Abu Dhabi, but customer response to double connections has been lukewarm in many markets.
The likely Etihad move is being closely monitored by the three global alliances. Jet Airways has been exploring alliance options for years and was last believed to be considering the Star Alliance. However, once the carrier is tied to Etihad—an unaligned airline—an alliance hook-up seems unlikely.
None of the global alliances has an Indian member so far, but given the expected growth in the coming years, all three are keen to team up with a local carrier. Star Alliance at one point had invited Air India to join. But when the government-owned airline missed several deadlines, Star shelved the plans. At the time, the flag carrier was preoccupied with implementing the merger with Indian Airlines and did not dedicate the kind of management attention to the alliance-joining process that would have been needed.