Jet Airways deal: Singapore Airlines also in the fray in talks between Naresh Goyal, Tatas
Media reports earlier this week suggested that the Tata Group had already started its due diligence process in order to pick up a controlling stake in Jet Airways, which recently reported its third consecutive quarterly losses for the quarter ending September.
- Nov 15, 2018,
- Updated Nov 15, 2018 1:13 PM IST
Although Jet Airways has consistently dismissed the buzz about a stake sale to the Tata Group as speculative, talks are reportedly picking up pace and a two-step transaction is being hashed out.
The cash-strapped airline could merge with Tata SIA Airlines Ltd - the joint venture between Tatas and Singapore Airlines that's known by the brand name Vistara - through a share swap in the first phase. Jet promoter Naresh Goyal, his partner Etihad, Tata Sons and Singapore Airlines will then all become partners in the new company, The Economic Times reported.
In the second step of the deal, Singapore Airlines could buy out the Goyal family's entire 51% stake in the new combined entity.
While Etihad may choose to continue with the venture as minority shareholder (it holds a 24% stake), it will have an exit option too.
"If Etihad needs an exit, we are ready to buy them out as well. Eventually, Tatas and Singapore Airlines will control the entity," a person with direct knowledge of the development told the daily.
Media reports earlier this week suggested that the Tata Group had already started its due diligence process in order to pick up a controlling stake in Jet Airways, which recently reported its third consecutive quarterly losses for the quarter ending September.
"The attempt is to work out a way where there would not be substantial cash payment involved in the buyout," a second source told the daily.
"Tata Sons chairman N Chandrasekaran is keen that a deal is quickly worked out that will strengthen the group's position in the aviation business and give it a much needed heft. Since Air India deal is not easily possible and the GoAir deal with the Wadias won't happen, Jet is our best bet," he added.
Tata, along with its partner Singapore Airlines, are expected to infuse capital to enable the Jet-Vistara combine to function effectively.
The deal in the works, if successful, will give the Tata Group's aviation plans a much-needed boost as it will secure Jet's landing rights, routes and related infrastructure amenities.
"The buyout will give access to slot landings that Tatas are keen on and not the relationships that Jet has with various partners," a source explained. The profits of Tata's airlines business have been deeply impacted by its inability to have flights across the country.
Significantly, the deal is expected to make the Tata Group India's second biggest airline operator after IndiGo in terms of market share, and third-largest in terms of fleet size. With Jet under its fold, the Tata Group-owned airlines, including AirAsia India, would reportedly have a combined market share of 23.6%, up from 8.2% as of September, as compared to 43.2% for IndiGo.
The Tata-Jet discussions are being led by group chairman N Chandrasekaran and his mergers and acquisitions team with significant inputs and suggestions from chairman emeritus Ratan Tata.
The sources added that talks between the representatives of the Tata Group, Singapore Airlines and Jet's management gathered pace after the latter's discussions with US-based private equity giant TPG Capital regarding a stake sale slowed down.
Jet on Tuesday said that it is at various stages of discussions with multiple "interested parties" for capital infusion and partial stake sale in its loyalty programme Jet Privilege.
Although various private equity firms, including Blackstone and TPG, had submitted bids for the frequent flier programme, the negotiations didn't advance much. The airline is scrambling for funds to tide over the liquidity crisis, which has resulted in delayed payments to some vendors and salaries to a 15% of its over 16,000 employees.
In a post-earnings call on Tuesday Deputy Chief Executive and Chief Financial Officer Amit Agarwal said that the airline had engaged the services of experts to help in the turnaround plan and enhance liquidity, adding that "six wide-body Boeing 777s have already been put on sale".
According to analysts, Jet's earnings were a disappointment although it has been managing positive cash flow through delays in vendor payments/higher lease incentives.
"These measures are not sustainable and will fall short, in any case any default on debt would lead to lenders dragging the company to NCLT," read a November 13 note by Edelweiss Securities, the daily reported. "Jet Airways' liquidity concerns are unlikely to dissuade a well-capitalised group like Tata, which has a track record of mega acquisitions a prospective deal may involve a notable control premium," the note to clients added.
Meanwhile, the speculation of a takeover by the Tatas is spurring on Jet's stock, which is up 4% since yesterday.
Last Monday, shares of the cash-strapped airline had soared 9.5% on reports of initiation of a second round of talks with the salt-to-software conglomerate. The stock has delivered 21.88% returns during the last one month.
With PTI inputs
Although Jet Airways has consistently dismissed the buzz about a stake sale to the Tata Group as speculative, talks are reportedly picking up pace and a two-step transaction is being hashed out.
The cash-strapped airline could merge with Tata SIA Airlines Ltd - the joint venture between Tatas and Singapore Airlines that's known by the brand name Vistara - through a share swap in the first phase. Jet promoter Naresh Goyal, his partner Etihad, Tata Sons and Singapore Airlines will then all become partners in the new company, The Economic Times reported.
In the second step of the deal, Singapore Airlines could buy out the Goyal family's entire 51% stake in the new combined entity.
While Etihad may choose to continue with the venture as minority shareholder (it holds a 24% stake), it will have an exit option too.
"If Etihad needs an exit, we are ready to buy them out as well. Eventually, Tatas and Singapore Airlines will control the entity," a person with direct knowledge of the development told the daily.
Media reports earlier this week suggested that the Tata Group had already started its due diligence process in order to pick up a controlling stake in Jet Airways, which recently reported its third consecutive quarterly losses for the quarter ending September.
"The attempt is to work out a way where there would not be substantial cash payment involved in the buyout," a second source told the daily.
"Tata Sons chairman N Chandrasekaran is keen that a deal is quickly worked out that will strengthen the group's position in the aviation business and give it a much needed heft. Since Air India deal is not easily possible and the GoAir deal with the Wadias won't happen, Jet is our best bet," he added.
Tata, along with its partner Singapore Airlines, are expected to infuse capital to enable the Jet-Vistara combine to function effectively.
The deal in the works, if successful, will give the Tata Group's aviation plans a much-needed boost as it will secure Jet's landing rights, routes and related infrastructure amenities.
"The buyout will give access to slot landings that Tatas are keen on and not the relationships that Jet has with various partners," a source explained. The profits of Tata's airlines business have been deeply impacted by its inability to have flights across the country.
Significantly, the deal is expected to make the Tata Group India's second biggest airline operator after IndiGo in terms of market share, and third-largest in terms of fleet size. With Jet under its fold, the Tata Group-owned airlines, including AirAsia India, would reportedly have a combined market share of 23.6%, up from 8.2% as of September, as compared to 43.2% for IndiGo.
The Tata-Jet discussions are being led by group chairman N Chandrasekaran and his mergers and acquisitions team with significant inputs and suggestions from chairman emeritus Ratan Tata.
The sources added that talks between the representatives of the Tata Group, Singapore Airlines and Jet's management gathered pace after the latter's discussions with US-based private equity giant TPG Capital regarding a stake sale slowed down.
Jet on Tuesday said that it is at various stages of discussions with multiple "interested parties" for capital infusion and partial stake sale in its loyalty programme Jet Privilege.
Although various private equity firms, including Blackstone and TPG, had submitted bids for the frequent flier programme, the negotiations didn't advance much. The airline is scrambling for funds to tide over the liquidity crisis, which has resulted in delayed payments to some vendors and salaries to a 15% of its over 16,000 employees.
In a post-earnings call on Tuesday Deputy Chief Executive and Chief Financial Officer Amit Agarwal said that the airline had engaged the services of experts to help in the turnaround plan and enhance liquidity, adding that "six wide-body Boeing 777s have already been put on sale".
According to analysts, Jet's earnings were a disappointment although it has been managing positive cash flow through delays in vendor payments/higher lease incentives.
"These measures are not sustainable and will fall short, in any case any default on debt would lead to lenders dragging the company to NCLT," read a November 13 note by Edelweiss Securities, the daily reported. "Jet Airways' liquidity concerns are unlikely to dissuade a well-capitalised group like Tata, which has a track record of mega acquisitions a prospective deal may involve a notable control premium," the note to clients added.
Meanwhile, the speculation of a takeover by the Tatas is spurring on Jet's stock, which is up 4% since yesterday.
Last Monday, shares of the cash-strapped airline had soared 9.5% on reports of initiation of a second round of talks with the salt-to-software conglomerate. The stock has delivered 21.88% returns during the last one month.
With PTI inputs