Jet Airways Seen Beating Kingfisher for Etihad Investment

Jet Seen Beating Kingfisher for Etihad Funds
Jet Airways’ network, domestic market share and a codeshare pact with Etihad may help it clinch a deal, according to analysts, including Kapil Kaul of CAPA Centre for Aviation. Photographer: Dhiraj Singh/Bloomberg

Jet Airways (India) Ltd. may trump Kingfisher Airlines Ltd. in the race for funds from Etihad Airways PJSC, hindering the grounded rival’s efforts to win investment to help restart flights.

Jet Airways’ network, domestic market share and a codeshare pact with Etihad may help it clinch a deal, according to analysts, including Kapil Kaul of CAPA Centre for Aviation. In comparison, Kingfisher stopped flying in October and had its license suspended by Indian authorities following service disruptions caused by five straight years of losses.

“For Etihad, tying up with Jet makes more sense,” said Arun Kejriwal, director at Kejriwal Research & Investment Services Pvt. “It’s an airline that is in business and also flies to the Middle East. They can have a new hub.”

Both the companies are in talks with Etihad for a stake sale and the Gulf carrier may decide on one of them by next week, an Indian government official said Dec. 17. A share purchase by Etihad may attract more investors to the nation’s aviation industry, after companies struggled with high costs and a price war, according to Jagannadham Thunuguntla of SMC Global Securities Ltd. CAPA forecasts demand for seats may rise as much as 10 percent in the year to March 31.

“It will be a game changer,” said Thunuguntla, chief strategist of the New Delhi-based brokerage. “Until and unless foreign money comes in, many of the players risk going out of business. They need a fresh breather of life.”

Airbus A380

For more than two years, Chairman Vijay Mallya has been seeking capital for Kingfisher, the only Indian airline to have ordered Airbus SAS A380 planes. The carrier, which was No. 2 in India by market share about a year ago, has piled up debt of 85 billion rupees. It pared more than two-third of flights and returned planes to lessors before halting services in October.

Kingfisher said last week it’s in talks with investors including Abu Dhabi-based Etihad. The company and Jet Airways didn’t respond to e-mails seeking comment on the talks. Etihad Chief Executive Officer James Hogan reiterated Dec. 18 in Berlin that the carrier is looking at two opportunities in India. He declined to comment further.

Etihad has followed a policy of investing in smaller operators to help feed long-haul flights and turn its home emirate into a hub for intercontinental travel. It has stakes in Air Berlin Plc, Virgin Australia Holdings Ltd., Aer Lingus Group Plc and Air Seychelles Ltd.

Hogan said earlier this month in an interview that he wouldn’t be “stepping in to just help someone out.” The carrier would make investments “where it will improve my top line and bottom line and improve theirs too.”

Delayed Salaries

While Kingfisher struggled with widening losses, shrinking market share and labor troubles caused by delayed salaries, Mumbai-based Jet Airways and others such as IndiGo benefited by luring more passengers and charging higher fares.

“We were seeing business fundamentals improving in terms of the yields because of the consolidation in the industry after Kingfisher moved out,” said Mahesh Patil, co-chief investment officer at Birla Sun Life Asset Management Co. with $13.3 billion in assets. “The trend in aviation is booming. And the big event of money infusion has still to happen.”

Jet Airways, which posted an operating profit in the first two quarters, may narrow its loss to 1.83 billion rupees in the year ending March 31 from 14 billion rupees in the previous 12 months, according to the average of eight analyst estimates compiled by Bloomberg. It may report a profit of 3 billion rupees next year, the estimate shows.

Share Surge

SpiceJet Ltd., India’s only listed discount carrier, may also narrow its shortfall this year and return to an annual profit in the 12 months starting in April, according to the average of analyst estimates compiled by Bloomberg. SpiceJet has said it is planning to raise funds.

Shares of Jet Airways have more than tripled in Mumbai this year, making it the second-best airline stock in Asia, while Kingfisher slumped 27 percent. Jet Airways fell 2.3 percent to 609.3 rupees at close of trading today. Kingfisher dropped 4.6 percent to 15.4 rupees.

Jet Airways had 116 aircraft in its fleet, including Boeing Co. and Airbus planes, as of Sept. 30, and flies to as many as 125 destinations including Bahrain, Doha, Dubai, Jeddah, Kuwait and Muscat. The carrier this month agreed to expand a codeshare pact with Etihad, which operates services to nine Indian cities.

The Mumbai-based carrier had a 25.2 percent share of Indian domestic market in November, behind discount operator IndiGo’s 27.3 percent, according to data from the nation’s aviation regulator. State-owned Air India Ltd. had 20.7 percent and SpiceJet 19.5 percent.

‘Powerful Franchise’

Kuwait Airways and Gulf Air each used to own 20 percent of the Naresh Goyal-controlled Jet in the 1990s, when India allowed foreign ownership in airlines. Those holdings were bought back after the nation banned such investments. India ended the ban in September, allowing foreign carriers to own 49 percent in local airlines.

Jet may raise about 16 billion rupees ($293 million) from selling a 24 percent stake to Etihad, the Indian government official said this month. A similar holding in Kingfisher is valued at 3.1 billion rupees as of yesterday.

“Jet is a powerful franchise and it will be very valuable for any alliance or airline,” said CAPA’s Kaul, who heads the consultant’s India unit. “It looks that Jet might be the first carrier to receive foreign airline investment after the recent policy change.”

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