MUMBAI -- When Etihad Airways first bailed out India's Jet Airways in 2013, the terms were less than ideal: a minority 24% stake, bought at a premium, and with management remaining firmly in the hands of founder and Chairman Naresh Goyal.
It was, according to analysts, a long-term bet on the fast-growing but fiercely competitive Indian market. Five years later, that bet may be closer to paying off as Etihad offers to bail out Jet Airways once again, this time on terms closer to its own choosing.
The Indian carrier is on even weaker footing than it was back then. It faces a mountain of debt coming due soon, and fierce competition from budget carriers has eroded its once-dominant share of the $16 billion domestic market to less than 14%.
Jet Airways' board will meet soon to discuss its options, according to sources. On the table is Etihad's proposal to buy a 45% stake at a roughly 50% discount and on condition that Goyal step down as chairman. There are also rumors that State Bank of India, Jet Airway's biggest lender, could take a 15% stake in the airline in a debt for equity swap.
This opportunity comes amid struggles at Etihad itself, which has been posting losses for the past two years and has reportedly laid off 2.5% of its 2,065 pilots. Its strategy of taking minority stakes in struggling airlines has also been put to the test. Two European airlines Etihad had invested in -- Alitalia and Air Berlin -- have filed for bankruptcy protection.
Jet Airways' lenders also stand to benefit if Etihad steps in. The Indian carrier's debt stood at around 84.1 billion rupees ($1.18 billion) as of last September, 30 billion rupees of which comes due at the end of March.
One of the biggest differences between now and five years ago is the potential for a management shakeout. Etihad currently has two members on the nine-member board of Jet Airways, and a bigger stake would increase its voting rights and veto power. If Goyal is forced to step down, it could clear the way for Etihad to install a chairman of its own choosing, particularly if it brings an Indian partner on board.
Some analysts say the chairman has treated Jet Airways like his personal fiefdom, a situation that has not helped the airline navigate the increasingly tough market. Etihad has reportedly been trying to change how the company is run since taking its initial stake.
According to a longtime industry watcher, Etihad knew that Jet Airways would not forsake the partnership as it would need more money, and Etihad was prepared to stick around for the long haul.
"Jet is an established airline, it has a large airline fleet, it has very strong sales and strong marketing. Jet has many positives. It has value," said Mark Martin, founder and CEO of Martin Consulting. "They are looking at the long term," he said of Etihad.
That "long term" is India's booming aviation market, success in which would take Etihad closer to its goal of becoming one of the largest global airlines.
The number of international air passengers entering or leaving India grew 10% in the year through last March, while domestic passengers increased 18%, according to the India Brand Equity Foundation.
But even though overall passenger numbers have grown at an annual average of 12.7% since 2006, India's airline market remains a tough place to make money. Consolidation is regarded as unavoidable, with as many as 12 airlines locked in constant price wars. Other private airlines in India include IndiGo Airlines, Vistara, SpiceJet and AirAsia.
Like its peers, Jet Airways has also suffered from rising global oil prices and a depreciating rupee. In August, the carrier embarked on a plan to cut costs by 20 billion rupees over the next two years. Fresh equity infusion was part of the plan.
According to CARE Ratings analyst Ashish Nainan, a bailout by Etihad would bring both financial and operational benefits for Jet Airways.
"Jet gets a better promoter [owner] for sure," he told the Nikkei Asian Review. "Plus, they can renegotiate many of the deals and contracts with companies that are leasing or have contracts with Jet Airways. Given that Etihad is a much larger and stronger entity, they would definitely derive that kind of financial and operational strength."
For the deal to go ahead, Jet Airways would need to issue new shares. The board on Feb. 21 plans to ask for shareholder approval to issue an additional 500 million normal shares and 1.5 billion preferential shares, increasing its authorized share capital to 22 billion rupees from 2 billion rupees, according to its stock exchange filing. It is also seeking approval to make changes in an article in the memorandum of association so lenders can nominate directors or observers to the board.
If a deal with Eithad falls through, analysts reckon, Jet Airways may approach Tata Group. In November, Tata Sons -- the holding company of the Indian conglomerate -- confirmed it was considering an acquisition of Jet Airways.
The worst case scenario, according to Martin, would be if this option too falls through and Jet Airways is "left to fend for itself."
That could push the airline into bankruptcy, which would be bad news for its Indian lenders, who are already reeling under a total of more than 10 trillion rupees worth of bad loans to Jet Airways and other companies.
Moreover, Jet's failure would reflect badly on the aviation policies of the government and raise questions over the true potential of such a tough market. According to sources familiar with the matter, the government is keen for Jet Airways to continue operating, not least because it directly employs some 17,000 people and more indirectly. There are also concerns that one less player in the aviation market would mean less competition, which is not good for consumers.
The sources added that the government is not planning to become involved in any potential deal unless there are issues related to foreign investment or "substantial ownership and effective control" regulations.
Nikkei staff writer Kiran Sharma in New Delhi contributed to this story.