It sounded too good to be true — Etihad paying a huge premium of 32 per cent over the market price to pick up just 24 per cent equity in Jet Airways. Large premiums are usually associated with a transfer of control but Etihad was not getting into the pilot’s seat of Jet Airways. The equity stake was also not big enough to make a difference as an investor as Etihad would still be unable to block special resolutions at shareholder meetings.
Throw in the fact that Jet is not exactly in the pink of health. With accumulated losses of over Rs.1,900 crore and borrowings of over Rs.13,000 crore, the airline is hardly an attractive investment candidate. So, how was Etihad persuaded to part with such a large premium for a small stake?
The answer came immediately after the deal was made public. The government announced an increase in the bilateral weekly seats between India and Abu Dhabi to 36,670 seats a week from 13,330 at present. That’s almost a three-fold rise and is a huge shot in the arm for the small emirate of Abu Dhabi whose national carrier is Etihad.
In the airline industry, seat capacities between two countries are decided through bilateral agreements with each country then apportioning its share to different airlines registered there. In the case of Etihad, it is the national carrier for Abu Dhabi and will enjoy the whole share of the emirate’s bilateral seats.
28/04/13 Raghuvir Srinivasan/The Hindu
