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Jet Airways shares slump as partner Etihad said to insist on lower valuation for investment

Mumbai-based carrier's crisis is the latest in Indian aviation sector

The crisis at Jet Airways highlights the troubles of India's aviation industry where cutthroat competition and a protracted price war have driven fares to below cost.   © Reuters

MUMBAI (NewsRise) -- Shares of Jet Airways India plunged Wednesday amid media reports that partner Etihad Airways insisted it will infuse fresh equity into the struggling carrier only at a steep discount.

According to a CNBC-TV18 report, Etihad offered to increase its holding in Jet Airways at 150 rupees a share, which is at a 45% discount to the Mumbai-based airline's closing price of 271 rupees on Wednesday. Etihad, which owns 24% in Jet Airways, is willing to immediately infuse $35 million into the company if certain conditions are met, the report said, citing a letter from the Abu Dhabi-based carrier's CEO.

The crisis at Jet Airways highlights the troubles of India's aviation industry where cutthroat competition and a protracted price war have driven fares to below cost. The sector's woes have been aggravated by fuel prices hitting a four-year high last year and the Indian rupee slumping against the dollar. In the quarter ended in September, Jet Airways reported its third straight quarterly loss while market leader IndiGo, owned by InterGlobe Aviation, posted its first loss since 2015.

On Wednesday, shares of Jet Airways lost as much as 7.9% in Mumbai trading, marking its biggest intraday fall since early December. The benchmark S&P BSE Sensex closed little changed.

In a statement on Wednesday, Jet Airways said the company, in consultation with a consortium of lenders led by the State Bank of India and other stakeholders, has been working on a "comprehensive resolution plan" toward a turnaround. The resolution plan contemplates various options for the debt-equity mix, proportion of equity infusion by the various stakeholders, and the consequent change in the composition of the company's board, it added.

Earlier this month, the carrier delayed payments to a consortium of banks led by SBI, citing a temporary cash flow mismatch. The default also prompted local rating agency ICRA to downgrade Jet Airways's long and short-term ratings. At the end of September, the cash-strapped reported a total debt of 84.1 billion rupees ($1.2 billion), of which nearly 60% is denominated in U.S. dollars.

Rising fuel costs and soaring debt have led to the downfall of several other carriers in the past, including state-owned Air India and Kingfisher Airlines. New Delhi has sunk billions of dollars of public funds to revive Air India in the past and is now aiming to sell national carrier. An initial plan to sell a 76% stake in the airline did not take off last year due to lack of interest from bidders.

The industry's growth in the last few years had been driven by the scorching pace of air travel growth that turned India into the largest aviation market after the U.S. and China. India's domestic airline passengers have crossed more than 100 million annually.However, the industry is witnessing a demand slowdown in recent months, with growth decelerating to a more-than-four-year low in November, as India's economy grew at a slower pace.

--Dhanya Ann Thoppil

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