Changing Dynamics of the Indian Civil Aviation Industry: Jet-Etihad Strategic Alliance
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Case Code: BSTR436 Case Length: 14 Pages Period: 2012-2013 Pub Date: 2013 Teaching Note: Not Available |
Price: Rs.400 Organization: Jet Airways, Etihad Airways Industry: Aviation Countries: India; Middle East; Global Themes: Strategic Alliances, Joint Ventures, Macro-Environmental Analysis, Industry Analysis |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Indian Aviation Industry
The history of the Indian aviation industry can be traced back to the mid-1900s when nine airlines existed including Indian Airlines and Air India . In 1953, through the Air Corporations Act, all private airlines were nationalized. In 1986, private players were allowed to operate as air taxi operators. In 1993, after the private players were given permission to operate scheduled services, the Indian aviation market witnessed the entry of a number of private carriers including Jet Airways, Sahara Airlines , Modiluft , Damania Airways , and East-West Airlines . However, in 1997, all the private players except Jet and Sahara ceased their operations. In 2001, the ATF price was decontrolled, which led to a decline in its price...
The Deal and Its Rationale
On April 24, 2013, in a joint statement, Jet and Etihad announced a strategic alliance in which Etihad would take a 24 percent stake in Jet for US$379 million. Etihad would subscribe to Jet's 27.3 million new shares at Rs.754.74 per share. As per the sale and leaseback agreement announced in February 2013, Etihad would inject another US$ 220 million including a US$150 million equity investment in Jet's frequent flyer program 'Jet Privilege', and in buying Jet's three pairs of slots in London's Heathrow airport for US$70 million. "The Indian market is fundamental to our business model of organic growth partnerships and equity investments. This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world," said Hogan...
Initial Reactions to the Alliance
Industry experts were of the view that the strategic alliance would be beneficial for both airlines. According to CAPA, "Jet will get a much needed boost while Etihad gains strategic entry into a long term growth market. The practical implications of the deal will unfold over the coming weeks, but the outcome is likely to be changes in Jet senior management level, much deeper code sharing, and schedule co-ordination between two carriers and probably joint purchasing agreements."...
Turbulence in Air?
As of June 2013, the Jet-Etihad deal was awaiting regulatory approval. On June 14, 2013, the FIPB deferred its decision on the deal due to concerns raised by various ministries including Civil Aviation and Corporate Affairs regarding the proposed ownership and control structure of Jet after the completion of the deal. The FIPB sought a reworking on the ownership structure proposed in the deal The contentious issues as far as the Civil Aviation Ministry was concerned were the proposal of Etihad's relocation of some business departments to Abu Dhabi after the allotment of Jet's shares and the lack of clarity on whether two thirds of the board members of Jet would be Indian or not. The Ministry of Corporate Affairs raised concerns over the fact that despite being a minority shareholder, Etihad would have the right to nominate three members on the board including the Vice Chairman. Earlier, the Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI) had also sought clarity on the deal...
Exhibits
Exhibit I: Financial Highlights of Jet Airways
Exhibit II: Operational Highlights of Jet Airways
Exhibit III: Financial Highlights of Etihad Airways
Exhibit IV: Operational Highlights of Etihad Airways
Exhibit V: FDI Regulations in the Indian Aviation Sector
Exhibit VI: Market Share of Domestic Airlines in India (2012)
Exhibit VII: International Market Share (Passengers Flying in/out of India)
Exhibit VIII: Key Figures for Jet-Etihad Alliance
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