A Jet Airways India Ltd. plane prepares to land at Chhatrapati Shivaji International Airport in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Modi Has Asked Tata to Explore Buying Jet Stake, Sources Say

(Bloomberg) -- The interests of India’s government and the nation’s biggest conglomerate are converging over a teetering airline.

Narendra Modi’s administration has approached Tata Group’s salt-to-software empire to help rescue Jet Airways India Ltd., people familiar with the matter said. To aid the process, the government is talking to Tata about a potential haircut to state-run banks on Jet’s loans and writing off some of its dues to the state-run airports operator, one of the people said. Tata’s board is deliberating a takeover Friday.

Taking over Jet Airways could give Tata Group’s fledgling aviation business a real shot at dominating the fastest-growing major air-travel market, where fares as low as 2 cents have kept the industry unprofitable for a decade. For Modi, averting a collapse of the country’s second-largest airline -- and ensuing job losses in the thousands -- is crucial before facing the world’s biggest elections due in May.

Tata is no stranger to aviation. One of the early patriarchs of the group, Jehangir Ratanji Dadabhoy Tata, started Tata Airlines in 1932 as India’s first, which eventually morphed into national carrier Air India.

Ever since the government started allowing private carriers again in the 1990s, Chairman-Emeritus Ratan Tata had nursed ambitions of staging a comeback, ultimately leading Tata Sons Ltd., the holding company, to form two joint ventures: one with Singapore Airlines Ltd. called Vistara, and another with AirAsia Group Bhd.

Expanding Footprint

However, neither has made a significant dent in the local market, controlling a combined 8.2 percent share. An acquisition would expand that footprint and help gain a market share of about 24 percent almost overnight, making Tata the largest aviation empire in India after IndiGo, a budget carrier operated by InterGlobe Aviation Ltd.

A deal with Jet Airways, in which Abu Dhabi’s Etihad Airways PJSC owns a 24 percent stake, would also give the Tata Group access to some lucrative assets in the aviation business -- including landing and parking slots in airports from Bangkok to Amsterdam, a large fleet of aircraft, and an established domestic network based in Mumbai.

One Option

Although the structure of a potential deal hasn’t been firmed up, one option is to combine Jet with Vistara, said one of the people, who asked not to be identified as the talks are private. The negotiations are at an early stage and there’s no certainty that a deal would be reached, the people said. India’s Economic Times said earlier that the companies are weighing a potential all-stock merger of the carriers -- something Jet said was speculative.

One obstacle to Jet-Vistara combination could be the difference in fleets and brand identity, which might mean keeping the two separate in the shorter term, one person said. The Economic Times reported Friday that Tata Group has initiated talks to end its partnership with AirAsia.

Another hurdle could be the quality of Jet’s books, and the due diligence may take a month or more, one of the people said. Mumbai-based Jet, controlled by Naresh Goyal, hasn’t seen a profit in nine of the past 11 fiscal years. The company reported its third straight quarterly loss Monday with surging liabilities that signaled a deepening of financial distress. A weakening rupee also added to its woes. It has fallen behind on payments to staff and lessors.

Jet shares extended gains, jumping as much as 14 percent on Friday, following a 24 percent surge the previous day, which was the biggest single-day gain on record. A Tata spokesman declined to comment, while an aviation ministry spokesman did not answer multiple calls and a text message sent to his mobile phone.

Jet Airways is the latest Indian airline in trouble. Kingfisher Airlines, founded by beer tycoon Vijay Mallya, ended operations in 2012 after failing to clear its dues to banks, staff, lessors and airports. SpiceJet Ltd. almost collapsed two years later before its founders returned to gain control and revive the company.

Lenders are still trying to recover dues from Mallya, a fugitive now in London. He fled India more than two years ago, an episode that cast a shadow on Modi’s government. Jet’s collapse could result in further embarrassment for Modi, whose key campaign platform in the 2014 polls was job creation.

Losses at Indian carriers will balloon to as much as $1.9 billion in the year ending March 2019, and they need to raise more than $3 billion in working capital in the near term, according to Sydney-based consultancy CAPA Centre for Aviation. Most of them have cash balances that can cover expenses for only two to three weeks, according to CAPA.

A deal between Tata and Jet Airways won’t change those dynamics immediately, said Rahul Kapoor, a transportation analyst for Bloomberg Intelligence.

“Tata Group’s white-knight act to take a stake in Jet Airways is unlikely to alter the Indian aviation market,” he said. “Perennial weak profitability and competitive intensity will remain a bane for the foreseeable future.”

©2018 Bloomberg L.P.