Etihad aims for partner Jet Airways to be profitable by 2017

Abu Dhabi airline commits to Indian equity partner with plans to consolidate within two years.

Chairman of Jet Airways, Naresh Goyal, with James Hogan, president and chief executive of Etihad Airways, during a press conference in New Delhi. Money Sharma / EPA

NEW DELHI // Etihad Airways expects to make its equity partner India’s Jet Airways profitable by 2017.

The plan is to reduce losses next year and consolidate the enterprise in 2016, Cramer Ball, the chief executive-designate of Jet, told a joint press conference in New Delhi to formally announce the partnership.

“More seats through improved use of capacity, and increased load factor from 77.6 per cent [this year] to 79 per cent” would be some of the key highlights to turning it around, Mr Ball said.

The strategy for Jet’s turnaround also includes restructuring debt, selling or leasing back surplus aircraft, and improved frequencies between India and Abu Dhabi. It will also keep its fleet light and product classes to two – business and economy, and reduce liabilities.

James Hogan, the president and chief executive of Etihad, also backed the plan.

“We have no exit strategy from Jet, we are here to stay,” said Mr Hogan. “The investment is there, the game plan is in place, now it’s about delivering.”

Jet reported losses of US$689 million for the financial year ending March while its consolidated losses stood at $1.77 billion for the same period.

Unlike Etihad’s other equity partnerships, redundancies are not expected to be many, including those of the pilots.

So far this year, Jet has laid off 40 cargo loaders and security personnel from Delhi, according to the Economic Times newspaper.

“We haven’t discussed redundancies at all, that’s not an issue for Etihad,” Mr Hogan said. “We are talking about restructuring over the next three years.”

Etihad has already employed 38 Jet pilots, Mr Hogan said. Jet employs 1,600 pilots. Etihad has 2,027 pilots.

Jet’s share price closed 3.71 per cent higher yesterday at 265.4 Indian rupees on the Bombay Stock Exchange following talks of the turnaround plans, but the shares have lost 9 per cent so far this year.

Etihad acquired a 24 per cent stake in Jet for US$380m, and paid $70m for three pairs of arrival and departure slots at Heathrow airport though a sale and leaseback agreement last year. Another $150m went to Jet as investment in its frequent flyer programme.

But more capital infusion is needed for Etihad’s ambitious plan, said analysts.

While Etihad and Jet will not comment on whether the equity stake could go above 24 per cent, Etihad could take other options of capitalising Jet and yet remain at the current level, said Kapil Kaul, the chief executive for South Asia at the consultancy Center for Asia Pacific Aviation.

“We are expecting another large loss for Jet in the financial year 2015 as Jet group losses are estimated at $250m to $275m,” Mr Kaul said. “Another round of large capitalisation is due in the next 12 to 24 months.”

Etihad is also expected to support Jet in borrowing $150m through HSBC.

The domestic operations of Jet, which accounts for a majority of the losses, will also go through restructuring, Mr Ball said.

Competition in the market has led to price wars, and market share is declining for most airlines in the domestic market.

Indian carriers lost a $1.3bn in the financial year to March, according to Capa.

“The situation is made worse by excess seat and freight capacity, particularly in the domestic industry,” said Naresh Goyal, the Jet chairman.

Jet and its subsidiary Jet Konnect together had a domestic market share of 21 per cent in May, according to India’s Directorate General of Civil Aviation. This is down from 25.2 per cent in January. The market in India grew to 6.02 million passengers, up by 5.46 per cent from May 2013.

The market leader IndiGo, national carrier Air India, GoAir, SpiceJet and Air Costa are the other local players.

So far this year, the government has approved six new licences for airlines, most of whom are expected to start operations next year. These are in addition to and Tata-Singapore Airlines, expected to start operations in October, and Air Asia India

“We see serious challenges for Jet and the need for continuous and long-term flow of capital before things stabilise,” said Mr Kaul. “Jet has to be financially viable and this will be Etihad’s biggest challenge.”

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