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'Jet's financial health a factor in Abu Dhabi seat hike'

Source : BUSINESS_STANDARD
Last Updated: Sat, Apr 27, 2013 18:40 hrs
"Jet-Etihad deal to help Indian aviation industry"

Even as the civil aviation ministry is under fire for enhancing the seat capacity to Abu Dhabi, sources familiar with the government's decision said the increase was essential for the successful passage of the Jet-Etihad alliance and equity infusion into the airline.

The sources said the government's decision was not influenced by the limited question of demand-supply and traffic projections on the route. Jet's financial health and the need for fund infusion also weighed in. The considered view was that the over Rs 2,000-crore equity infusion by Etihad would help Jet sail through its current troubles and help it plan and execute its expansion strategy.



Over the last few years, Jet has tried to raise $ 400-million equity through qualified institutional placement route. However, its efforts failed to yield results and the government, too, did not give a go ahead in view of the 80 per cent foreign holding in the airline. Jet's current debt level is around Rs 12,000 crore. The airline's debt level and interest costs came down last year after the airline carried sale-lease back of its aircraft to repay loans but has to make a repayment of over Rs 2,000 crore this year.

Jet sources confirmed that the financial situation was difficult and said the funds were required for growth and not for survival.

Earlier this week, India enhanced traffic rights for Abu Dhabi to 50,000 seats a week, up from current entitlement of around 13,000 seats, brushing aside the opposition from state-owned carrier Air India, other domestic carriers and private airports. Though Jet Airways led the demand for traffic rights to 41,797 seats out of 55,191 seats, Etihad had initially demanded only about 25,000 seats for the next 3 years.

On the same day when bilaterals were signed, Naresh Goyal-promoted Jet Airways sealed a deal with Abu Dhabi-based Etihad Airways under which the latter will pick a 24 per cent stake in the country's second-largest domestic airline for Rs 2,054 crore.

The opposition for the award of this huge bilaterals was not just restricted to aviation circles. Even in the inter -ministerial group meeting, the finance ministry had expressed its reservations saying the move would take away Indian air traffic, not only harming airports but also airlines, especially national carrier Air India. In addition to that, it would cannibalise the traffic share of Indian airlines by flying passengers to various parts of the world through its hub airport in Abu Dhabi, on the same strategy as Emirates. However, all the ministries came on board for this increase later on.

There was opposition even from political circles. Trinamool Congress MP Dinesh Trivedi also shot off a letter to the prime minister seeking immediate intervention to suspend talks of increasing bilateral flying rights between India and Abu Dhabi.

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