The Tata group and Naresh Goyal-promoted Jet AirwaysNSE 3.82 % are inching towards a two-step transaction, the first leg of which could see the merger of Jet with Tata SIA Airlines, the joint venture between Tatas and Singapore Airlines that operates Vistara. The second step of the deal could involve the purchase of the Goyal family’s stake in the combined entity by Singapore Airlines.
Two people with direct knowledge of the development said the talks between representatives of Tata group, Singapore Airlines and the Jet Airways management gathered pace after US private equity giant TPG Capital opted to go slow on its talks to buy a stake in Jet. As per the terms under discussion, Jet Airways will first merge with Tata SIA through a share swap.
The Naresh Goyal family, Etihad, Tata Sons and Singapore Airlines will all become partners in the new company. In the second stage, Singapore Airlines will buy out the shares of the Goyal family, giving them a complete exit. Goyal’s partner Etihad may continue with the venture as minority shareholder.
“However, if Etihad needs an exit, we are ready to buy them out as well. Eventually, Tatas and Singapore Airlines will control the entity,” said one of the two persons quoted above. When contacted, a Tata group spokesperson said, “We don’t comment on market speculation.” Jet Airways didn’t respond to ET’s mail seeking comment.
Talks Led by Chandrasekaran
The transaction, if successful, will give the Tata group’s aviation plans a much needed boost as it will secure landing rights, routes and related infrastructure amenities of Jet after the deal. Tata, along with its partner Singapore Airlines, are expected to infuse capital to enable the Jet-Vistara combine to function effectively.
“The attempt is to work out a way where there would not be substantial cash payment involved in the buyout,” the second person quoted above said. “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.
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 profits of Tata’s airlines business have been deeply impacted by its inability to have flights across the country.
“The buyout will give access to slot landings that Tatas are keen on and not the relationships that Jet has with various partners,’’ the second person said. “Once the deal basics are ironed out, it will come to the Tata Sons board, Singapore Airlines and then Vistara.”
The Tata group wants complete control over Jet Airways along with the exit of existing promoters, the Goyal family, and had rejected an initial proposal for part-ownership and joint control of the airline. ET had reported first that the Tata group was keen on a deal only if the Goyals’ agreed to exit. Jet representatives offered the Tatas 26% and some board-level positions, including vice-chairmanship. This proposal has been rejected. Naresh Goyal and wife Anita Goyal own 51% in the airline while UAE’s Etihad Airways holds 24% stake.
Jet has repeatedly refused to comment on investor talks, calling them speculative. In a conference call with analysts on Tuesday, Jet’s finance chief Amit Agarwal, however, said there was considerable investor interest both in the airline and the miles reward programme it co-owns with Etihad. Jet is pruning its network, trying to sell planes, cutting its staff strength and has been forced to delay salaries. Its chief executive Vinay Dube on Tuesday said 15% of its 16,000 employees haven’t received salaries and they “are not happy”. He, however, claimed that all of them are cooperating with the airline to help it clock unprecedented levels of efficiency.
Cash-strapped Jet has been in talks with both strategic and financial investors to sell assets and a major chunk of its business to stay afloat. It had informed stock exchanges of its plan to sell stake in the frequent flyer business, Jet-Privilege. Various private equity firms including Blackstone and TPG had submitted bids for the loyalty programme, but the negotiations didn’t advance much. The Tata group, which founded Air India decades ago, has two aviation joint ventures —one is Vistara, a full-service carrier with Singapore Airlines, and the other is a low-cost carrier with Malaysian budget airline AirAsia.
According to analysts, Jet Airways’ 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,” Edelweiss Securities analysts Jal Irani and Vijayant Gupta wrote in a note on Nov 13. “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,” they said in a note to their clients.
Source: Economic Times