jet etihad deal on merger and acquisitions

7/23/2019 Jet Etihad Deal on Merger and Acquisitions

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JET ETIHAD DEALMergers and Acquisition Assignment B


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JETETIHAD DEAL

1 SECTORAL CODITIOS !RE"DEAL

The Indian Aviation Industry had been going through a turbulent phase over thepast several years facing multiple headwinds - high oil prices and limited pricingpower contributed by industry wide over capacity and periods of subdued demandgrowth. The challenges facing the airline operators were related to high debt burdenand liquidity constraints. Most operators needed signicant equity infusion to eecta meaningful improvement in their balance sheet. hile in the beginning of !""#-"$% the sector was impacted by sharp rise in crude oil prices% it was the decline in

passenger tra&c growth which led to severe underperformance.


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In the 're deal era% the Indian domestic carriers had reported a combined loss of()* +., billion for the nancial year !"+!-+ with more than "/ of the loss

accounted during the last quarter 01anuary-March2. 3levated fuel prices over the lastthree quarters coupled with intense competition and hostile foreign e4changeenvironment had deteriorated the nancial performance of airlines industry.


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The rising costs of airports further accounted for a steep rise in passenger fareswhich contributed to the loss ma5ing industry. Adding to the woes was the lac5 ofinfrastructure development for airports. 3ective from May% !"+!% the Airports3conomic 6egulatory Authority of India increased charges at the 7elhi Airport by,/% which it was estimated would result in a ()* "" million increase inoperating cost for airlines. Another ma8or cost component for Indian airlines wasthe maintenance% repairs and operations 09M6:;2. At that time% there were only !M6: facilities in India% which resulted in most maintenance and operation activitiesto be conducted outside India.


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In addition% regulatory hurdles had not helped the aviation sector. The airlinesoperating on the lucrative metropolitan routes were compelled to ply on unviableroutes% with the intention of connecting remote areas under the 6oute 7ispersal years.To address the concerns surrounding the operating viability of Indian carriers% the


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& ETIHAD AIR'A(S

3stablished by 6oyal 7ecree in 1uly !""% 3tihad Airways is the national airline of(nited Arab 3mirates which commenced operations in Eovember !"" and hasdeveloped into one of the fastest growing airlines in the history of commercial

aviation.

The airline see5s to reFect the best of Arabian hospitality - cultured% considerate%warm and generous - as well as enhance the prestige of Abu 7habi as a centre ofhospitality between 3ast and est. 3tihad Airways has been receiving the award forGorldHs @eading AirlineH at the orld Travel Awards for the past > years% thusestablishing it as one of the worldHs leading premium airline brands.

Business Detai)s

3tihad Airways operates more than +%""" Fights per wee5 to over +!" passengerand cargo destinations in Middle 3ast% Africa% 3urope% Asia% Australia America. The

airline has a Feet of +!" Airbus Doeing aircrafts% as of August !"+>. 3tihadAirways also carried +. million revenue passengers in !"+% a signicant increaseof !/ over !"+ levels.

!roducts

In addition to its core activity of passenger transportation% 3tihad also operates3tihad Bolidays and 3tihad ?argo. Also the airline established its own airlinealliance% called 3tihad Airways 'artners this year% which includes airline servicessuch as Alitalia% 1et Airways% Airberlin% Air @ingus% Air )erbia% Air )eychelles andJirgin Australia. Doo5ing for these airlines is consolidated under one networ5.

Eti*ad Ho)ida+s - 3tihad Bolidays is a division of 3tihad Airways that oers acomprehensive range of holiday pac5ages to the airlineKs destinations. This programfeatures a choice of more than L"" hotels and +" destinations in > countries inthe Middle 3ast% Africa% Asia% Australia% 3urope and Eorth America.

Eti*ad Cargo- 3stablished in !""% 3tihad ?argo is the fast growing cargo divisionof 3tihad Airways. =rom its hub at Abu 7habi International Airport% 3tihad ?argooers its customers a range of cargo services lin5ed to its e4panding internationalroute networ5 and aircraft Feet. It reported an impressive cargo growth for !"+%with >,#%,# tonnes of freight and mail Fown in total% a +L per cent increase year-on-year.

Ser$ices

Eti*ad *as , ca-ins. Diamond /irst C)ass. !ear) Business C)ass and Cora)

Econom+ C)ass0

Diamond /irst C)ass- 3tihadKs e4isting =irst ?lass cabin% labelled 7iamond =irst?lass% features a perfectly Fat% , ft # inch bed% in its own private suite. Their suites


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include a personal mini-bar and wardrobe% in-built massage and a !-inchwidescreen television. There is a changing room on board% and passengers alsohave their own personal chef.

!ear) BusinessC)ass-There are two Dusiness ?lass cabins - one that operates onwide body aircraft and one that operates on narrow body aircraft. Dusiness ?lass onwide body aircraft oers a , ft + inch full Fat bed% with nest dining and a +>-inchwidescreen television. There is also an in-built massage included. :n narrow bodyaircraft% they have a seat with $ inches of pitch.

Cora) Econom+ C)ass- 3conomy ?lass on all aircraft oers a cradle recline and !to inch seat pitch. All seats have +". inch entertainment screens oer ,L>hours of lms and games.

ith the introduction of the Airbus A#"s and Doeing L#L-$s% new cabins wereintroduced% their names beingN The 6esidence% The Apartments% =irst class suite 0notA#"2% Dusiness )tudio and 3conomy )mart seat. The rest of the Feet will graduallybe retrotted with these cabins e4cept for the 6esidence and Apartment cabinswhich will only appear on the Airbus A#"s.

/inancia)s3tihad Airways achieved its strongest nancial results to date in !"+% posting a netprot of ()* L million on total revenues of ()* L., billion% up >!.+ per cent and!,.L per cent respectively over the previous year.

)ome 5ey elements-

6evenue soared to ()* L., billion on bac5 of record passenger and cargo

volumes. 'assenger demand and revenue growth continued to outperform capacity

inta5e 3DIT7A6 0earnings before interest% ta4% depreciation% amortiation and

rentals2 and 3DIT 0earnings before interest and ta42 up by +,.! per cent and!.> per cent respectively

'artnership strategy delivered strong performance% with partnership revenues

up L.L per cent to ()* +.+ billion% representing ! per cent of passengerrevenues

3tihad ?argo e4ceeded ambitious nancial target to become a billion dollar

company in !"+% with annual freight and mail volumes rising from #L%"""to >,$%""" tonnes

The record performance% which mar5ed the airlineHs fourth consecutive year of netprotability% also saw earnings before interest and ta4 03DIT2 up !.> per cent to()* !>L million. 3arnings before interest% ta4% depreciation% amortiation andrentals 03DIT7A62 were up +,.! per cent to ()* +.+ billion% representing a +> percent margin on total revenues.

HR !o)icies

Denets of being an 3tihad 'ilotN


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=antastic ta4-free salary which is competitive within the industry and

reviewed on a regular basis. Meal Allowance during layovers.

?ompany provided accommodation or a generous accommodation allowance.

Access to e4clusive state of the art 3tihad swimming pools% health clubs and

tness centres at no cost. =light 7uty Allowance.

! 7ays Annual @eave.

)ta travel Denets.

3nd-of-service Denets.

34cellent free 'rivate Medical Insurance.

Accidental and @ive Insurance Denets.

3mployee discounts and )pecial :ers at restaurants% shops% hotels and

leisure facilities across the (nited Arab 3mirates.

Denets of being a ?abin ?rew Member

=antastic ta4-free salary which is competitive within the industry and

reviewed on a regular basis. =ree accommodation in a modern shared fully-furnished apartment% with your

own private facilities. 3verything is provided for you to ensure that you havea safe% secure and comfortable home in Abu 7habi.

3tihad transport to ta5e from your accommodation to the airport for your

Fight duties and then to bring you bac5 home again after your Fight. Access to e4clusive state of the art 3tihad swimming pools% health clubs and

tness centres at no cost% and reduced rate massage% hairdressing andbeauty treatments to 5eep you loo5ing your best.

@eading airline travel benets including unlimited personal travel at specialrates% an annual leave tic5et and generous concessions for family and friendsto use.

34cellent free private medical insurance and lifeOaccident insurance.

Annual leave of " days.

interline relationships and $ codeshare partnerships inplace with airlines such as Air =rance% Air Eew Pealand% Air ?anada etc. ?odesharesand strategic partnerships delivered over .> million passengers onto 3tihadAirways Fight in !"+% an increase of " per cent over the !.> million passengers in!"+.


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Also codeshares give 3tihad Airways a combined passenger and cargo networ5 ofnearly >"" destinations% and over !+%""" Fights per wee5% more than any otherMiddle 3astern airline.

, JET AIR'A(S

The second largest airline in India% both in terms of mar5et share and passengerscarried% 1et Airways operates out of India with "" daily Fights to L destinationsworldwide. The company is listed on Dombay )toc5 34change% with #"/ of itsshares held by Earesh


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a low-cost brand instead of e4panding the e4isting 1et@ite was ta5en to avoid theregulatory delays associated with moving e4cess aircraft and assets from 1etAirways to 1et@ite% which have separate operating codes. :n + 7ecember !"+% 1etConnect was fully merged with 1et Airways with complementary meal services tota5e on the competition from the new airlines.

Ser$ices

1et Airways has three cabinsN

/irst C)ass - =irst class private suites are available on all Doeing LLL-""36

aircraft. All seats convert to a fully Fat bed% similar to 3mirates or 3tihad rst class

seat. It was the second airline in the world to have private suites. All seats in =irst

have a !-inch widescreen @?7 monitor with audio-video on-demand systems

0AJ:72% D:)3 noise cancelling headphones% in seat power supply% and ()D ports

etc. 1et Airways is the rst Indian airline to oer fully enclosed suites on its aircraftQ

each suite has a closable door% ma5ing for a private compartment.

!remire - 'remiRre 0Dusiness ?lass2 on the Airbus A"-!"" and Doeing LLL-

""36 international Feet has a fully Fat bed with AJ:7 entertainment. )eats are

congured in a herringbone pattern with each seat oering direct access to the

aisle. 3ach 'remiRre )eat has a +>.-inch Fat screen @?7 TJ with AJ:7. ()D ports

and in-seat laptop power are provided. All seats are standard recliner business-class

seats with a few newer aircraft with electronic recline and massager.

Econom+ C)ass- 3conomy class on 1etKs A"-!""OLLL-""36 aircraft has !-inch

seat pitch. )eats on the A"-!""OLLL-""36 have a hammoc5-style net footrest.

3ach 3conomy seat on the A"-!""OLLL-""36 has a personal +".,-inch touch

screen @?7 TJ with AJ:7.

/inancia)s

1et Airways has been incurring losses over the years% with !"++ being the only yearin which the company posted a substantial prot. Against revenue of IE6 +L.!!million% the company posted a loss of IE6 .,, million.

Bere is a summary of its nancial performance for the past > yearsN


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The dwindling performance also saw earnings before interest and ta4 03DIT2dropping to a negative IE6 ,# million.

HR !o)icies

In :ctober !""#% 1et Airways laid o +%$"" of its employees% resulting in the largest

lay-o in the history of Indian aviation. Bowever the employees were later as5ed toreturn to wor5Q the then ?ivil Aviation Minister 'raful 'atel said that themanagement reviewed its decision after he analysed the decision with them.

The ensuing drama that unfolded resulted in loss of IE6 !"" crores to 1et Airways.This incident highlighted the short sightedness of the B6 Managers of the company.

Com#etiti$e /eatures

1et Airways has codesharing partnership with +L airlines including 3tihad Airways%Airberlin% Air ?anada etc. in order to enable the passengers to Fy to moredestinations on 1et Airways mar5eted Fights% apart from +$ interline partners.

2 DEALATTRACTI3EESS

Jet Air4a+s !ers#ecti$e

Eovember !"% !"+ was a historic day for the Indian aviation industry after 1etAirways 0India2 @imited and 3tihad Airways concluded the much tal5ed about ()*L$ million investment by 3tihad to acquire a !/ sta5e in 1et 097eal;2. In additionto the equity investment% 3tihad has also agreed to infuse ()* +>" million into 1et'rivilege% the frequent Fyer program of 1et% to be managed by its subsidiary% 1et'rivilege 'rivate @imited and also provide or arrange for a loan of ()* +>" million to

1et. 3arlier this year% 3tihad had purchased slots owned by 1et at the Beathrowairport in @ondon for ()* L" million.


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In !""#% 3tihad entered into a code-share agreement with 1et for connecting various

cities in India to destinations in 3urope. (nder the code-share agreement% 1et had

rights to codeshare Fights between India and Abu 7habi and between Abu 7habi

and 'aris. The code-sharing was available from ?hennai% 7elhi% Byderabad% Cochi%

Cohi5ode% Mumbai and Thiruvananthapuram in India. 1et is in the process of

e4panding its code sharing agreement with 3tihad to the Mumbai- Drussels- Eewar5route as well. )imultaneously with the code-share agreement% 1et and 3tihad also

entered into an agreement to lin5 their frequent Fyers programs. 3tihad has now

agreed to invest ()* +>" million into 1et 'rivilege 'rivate @imited 091et 'rivilege;2% a

wholly owned subsidiary of 1et. 'ost completion of this transaction% 3tihad will hold

>".+/ of 1et 'rivilege with $.$/ being held by 1et.

The listed carrier% 1et is struggling with losses and is

saddled with a debt burden of more than 6s +%""" crore.

The fresh Fow of funds will save " million to

help 1et pare its high-cost debt.

The 1et-3tihad deal% values 1et at 6s #>> crores% is beingseen as a potential game changer. hile 1et will be able get

fuel at cheaper rates and improve its margins% 3tihad willbe able to tap into one of the fastest-growing aviationmar5ets in the world% where air travel is forecast to tripleby !"!+. 1et currently Fies only to Drussels% Milan and@ondon on its own% while through code share agreements% itcan Fy to + other cities. 3tihad% has a much largerinternational presence% especially in 3urope% where it Fiesto +L destinations on its own% and to ## destinationsthrough code share agreements. The deal would give 1etaccess to 3tihadHs wide 3uropean networ5.

:ne of the main concerns for Indian airlines is the huge fuel costs. It is estimatedthat the deal would result in cost savings of appro4imately #-+"/ in fuel costs. Thiswould be the case especially in long international operations when the Fights wouldnow halt at Abu 7habi.

Eti*ad !ers#ecti$e


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3tihad has been on a globaliation phase acquiring sta5es in airlines globally. Thedeal for them was route to tapping into one of the fastest-growing aviation mar5etsin the world% where air travel is forecast to triple by !"!+. 'ossibility of three timesincrease in seats between India (A3. It helps airline build shei5hdom into anintercontinental transfer hub.

The deal might help 3tihad in cannibaliing the tra&c share of Indian airlines byFying passengers to various parts of the world through its hub airport in Abu 7habi

3tihad% which has a Feet of L aircraft% Fies to nine cities in India. Dut it can nowaccess ! cities% than5s to 1et. It can also use the 1et connection to tap the hugeinternational tra&c going through 7ubai and route it through Abu 7habi instead.


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3tihad has been on a globaliation phase acquiring sta5es in airlines globally. 7ealwith 1et Airways provided them opportunity to e4pand their reach in )ub ?ontinentregion also.

Jeti*ad

The alliance would enable 1et and 3tihad to cater to a large number of destinationscollectively. ?urrently% 1et Fies to LL destinations% out of which !" are internationaland 3tihad Fies to ## destinations. ?umulatively% post the investment% it is claimedthat 1et and 3tihad would Fy to +" destinations. 1et and 3tihad would also loo5 at

8oint purchasing of fuel% spare parts% etc. The Feet sie will increase to +#! andfrequent Fyers to . million. The revenue increase will be high i.e. up to *#.billion.

(nited Arab 3mirates 09(A3;2 has agreed to provide the change of gauge facilitiesto Indian airlines at Abu 7habi. ith this permit Indian airlines will change anaircraft without changing the Fight number.


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5 3AL6ATIO

3tihad bought a sta5e in the 1et Airways by valuing the 1etHs mar5et cap at S*+.!D06s L""" cr2 1et Airways was the rst Indian company to benet from the new =7I'olicy for the Airline sector. In case of 1et airways% there are two segments domestic and international. 7omestic segment is unprotable and Internationalsegment has turned protable. The airline currently has a debt to the tune of *!.+ D06s. +"!# ?r2. :ut of this debt L>/ is owing to aircraft and !>/ is due to thewor5ing capital requirements of the business. This !>/ wor5ing capital debt isperennial and will always e4ist for the rm. 6est L>/ of the debt is a concern for

any investor. The airline plans to pay bac5 this debt through sale-lease bac5 of theaircrafts. This means that the airline should sell its aircraft and then lease bac5these planes for operations. The capital received from the sale of plane can be usedto pay bac5 loans. The benet of this model is twofold. =irst this should decrease theinterest e4pense on debt used to buy the aircraft and second there will be noe4pense when airline wants to ground these planes. The company can pay bac5 allof its loan by sale-lease bac5 model in ne4t > years.

Through this analysis% we 5now that 1et Airways can be a debt free airline and hasthe ability to generate free cash Fow. 'lus% it has a niche in international travelmar5et which cannot be easily destroyed. Bence it is sustainable.

1et generated an 3DIT7A of *>! M from international operations in =U+. 3DIT7A isthe pro4y for free cash Fow. The international segment is going to grow at the rateof ->/. This is a global growth rate in international tra&c. The valuation ofinternational segment of 1et airways comes out to be equal to *.+ D based on freecash Fow analysis.

:n multiple basis% the airline transaction multiple% 3JO3DIT7A% is ++. timesaccording to !"+! C'M< report. Eow this means that the international segment isvalued at ++. 4 *>! M V *.$ D.


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Bence the current enterprise valuation of 1et airways is anywhere between *.+ to*.$ D. :ut of this valuation% removing the current debt of *!.+ D then the mar5etcapitaliation of 1et Airways should be *.+ D *!.+ D V *+ DS>$"" ?r.

The !.L crore shares represent a ! per cent sta5e in 1et AirwaysK fully-dilutedequity capital. At ! per cent% the Abu 7habi-based airline will not have to ma5e themandatory open oer for 1et. According to )ebi rules% a buyer acquiring a !> percent sta5e in a listed company will have to ma5e an open oer to the shareholdersof the target company% and the minimum sta5e that the acquirer can own after theopen oer is >+ per cent. Bowever% the government of India allows foreign airlinesto own only up to a $ per cent sta5e in Indian carriers.

7eal 'riceN 6s. L>.L per share

:er 'rice 'remiumN +.>> / premium

Mar5et 'riceN 6s >L.#> 0D)32

6s >L 0E)32)hareholders JaluationN 6s ,+"-,"

7eal valuation was of 1et Airways was at 6s #%>L crore. 1et was dealing withmounting debts and entered into the partnership to use 3tihadHs cash to pay debtand get global partner.

As part of the deal% there will be an overall cash infusion of * L>" million in debt andequity. The infusion will help 1et cut its debt from *!.+ billion to * +.> billion

*L$ million - 3quity investment

*+>" million - Investment in 1etHs frequent-Fyer programme

*+>"-million loan - Assistance to be provided in securing debt

*L" million - )ale and lease-bac5 of 1etHs Beathrow slots

)hareholding pattern post the dealN-


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>+/

!/

!>/

S*are Ho)ding !attern

Earesh /for listed companies in the private sector.

7 SECTORALCODITIOS!OSTDEAL

:ne of the growing sectors of the Indian economy is the aviation sector. It is theworldKs ninth largest civil aviation mar5et and ran5s fourth in domestic passengervolume. The civil aviation mar5et in India is all set to become the worldKs thirdlargest by !"!".

In IndiaKs airports sector% total passenger tra&c stood at a +,$ million in =U+%

registering an increase of >.$ per cent. 7omestic passenger tra&c e4panded at acompound annual growth rate 0?A


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The two airlines have been code-share partners since !""# and their relationshipwas strengthened in Eovember !"+% after 3tihad Airways received approvals toacquire a ! per cent sta5e in 1et Airways% mar5ing it the rst investment by aforeign carrier in IndiaKs airline industry. The deal helped 1et to infuse cash *L>"million% which helped cut its debt

This helped reduce 1etHs debt but also made operations slightly more cost-eectivedue to asset sharing and gave 1et indirect access to many of 3tihadHs overseasdestinations. )o going by this particular purchase by an airline entity% thatinvestments by foreign carriers is a most

positive development for Indian carriers is a given. 1et Airways has beneted fromaccess to a powerful hub in Abu 7habi and 3tihadHs global networ5. In addition ithas been able to renance its debt through lower cost funding. It also benets fromscale economies in procurement right across the board. They continue to e4plorecollaborative purchasing opportunities for fuel% spare parts% insurance andtechnology support.

The wide-ranging partnership has numerous advantages for travelers% includingenhanced connections across the world through an e4panded codeshareagreement% reciprocal Kearn and burnK rights and tier level recognition on the 1et'rivilege and 3tihad / sta5e through an I':.

The current valuation is double of its closest competitor. Xatar Airways has beenshowing interest to buy into Indigo for the past few years% however Indigo has notbeen 5een on the deal. The Indian aviation mar5et is opening up with e4pectedgrowth in travel numbers estimated at about +"/ for the ne4t decade.

8 LE9ALISS6ESADSTR6CT6RE

In )eptember !"+!% foreign investment in aviation industry in India was liberalied.In 1anuary !"+% 1et was the rst airline to ma5e a public announcement when itinformed the Dombay )toc5 34change of tal5s with 3tihad of potential investmentby 3tihad in 1et. The transaction was to be carried out by way of preferentialallotment of !L%!,%L! shares of 1et to 3tihad 0Transaction2. =or the purpose ofconsummating the Transaction% the parties entered into 0a2 investment agreement

dated April !% !"+ 0IA2% 0b2 a shareholdersK agreement between the promoters of1et% 1et and 3tihad 0)BA2% 0c2 a commercial cooperation agreement dated April !%!"+ 0??A2 and 0d2 a corporate governance code pursuant to the )BA 0?


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LE9AL A!!RO3ALS RE:6IRED

The Transaction required the approval of a number of regulators% including the?abinet ?ommittee on 3conomic Aairs 0??3A2% =oreign Investment 'romotionDoard 0=I'D2% the ?ompetition ?ommission of India 0??I2 and )3DI.

A!!RO3AL TIMLEIE;

=I'D The =I'D was to consider approving the Transaction in its meeting on1une +% !"+.! Bowever% the decision was deferred by =I'D statingthat more clarity was required with respect to 3tihadKs rights underthe Transaction 7ocuments. )ubsequently% the Transaction wasapproved by =I'D in its 1uly !$% !"+ meeting. The approval wasconditional requiring certain conditions as mentioned therein to besatised.

)3DI )3DI had approved the Transaction on :ctober +% !"+ stating thatthe Transaction would not trigger open oer obligations under the)3DI 0)ubstantial Acquisition of )hares and Ta5eovers 6egulations2%!"++ 0Ta5eover ?ode2. Bowever% )3DI did not comment on the ??A%and had specically stated that it would be guided by the decision ofthe other regulators in this regard.

??3A :n :ctober % !"+% the ??3A approved the Transaction.

??I The ??I approval 0??I :rder2 for the Transaction was received onEovember +!% !"+.

TERMS AD CLA6SES

The whole time member of )3DI held that the Transaction would not attract theprovisions of the Ta5eover ?ode. In concluding the same% it relied on the followingpoints.


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The Ministry of =inance 0Mo=2 has claried that the mandate of =I'DO ??3Ais merely to ensure compliance with the =7I 'olicy. The =7I 'olicy has beenrevised by 'E , to state KA )cheduled :peratorKs permit can be granted onlyto a company the substantial ownership and eective control of which isvested in Indian nationals. Accordingly% =I'D and ??3AKs approval is evidentthat the Transaction is in compliance with the =7I 'olicy.

?omparing the denitions of KcontrolK under the =7I 'olicy and the Ta5eover?ode% the :rder mentioned that the denitions are para materia. hilecomparing the Ta5eover ?ode denition of control with that under the ?A!""!% the :rder held that the denition as under ?A !""!% which deals withKcontrolling the aairs and managementK is of much wider import than thatunder the Ta5eover ?ode% which includes the right to appoint ma8ority of thedirectors or controlling Kthe management or policy decisionsK. Accordingly%the decision of ??I would not be the guiding factor for )3DI in determining ifcontrol has been acquired under the Ta5eover ?ode.

In determining whether 3tihad was a person acting in concert% the :rderemphasied that the denition of persons acting in concert% read with 1ustice'.E. Dhagwati committeeKs observations required a common ob8ective ofacquisition of shares or voting rights or control of the target company. (nlessthe commonality of ob8ective of acquisition of sharesO voting rightsO controlwas established% the concerned persons would not be persons acting inconcert. The ob8ective of the ??A was merely to e4ploit synergies by detailingoperational modalities.

)ince the 'romoters were not parties to the ??A% and as per the )upreme?ourtKs verdict in 7aiichi )an5yo% an acquirer cannot be a person acting inconcert with the target company itself% it was held that the 3tihad and 1et are

not persons acting in concert.

The right to control the decisions rests with the ?ooperation ?ommittee andthe four =acilitation


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o @ac5 of any vetoO a&rmative voting rights with 3tihadQ

o Any pre-emptiveO tag along rights with 3tihad.

< RES6LTI9ETIT(!ER/ORMACE!OST"DEAL

Jet Air)ines

The most important benet that 1et shall derive from this deal

+. 6eduction of interest payments on the outstanding debto The debt on 1etHs boo5s was appro4imately ()* !.+ billion as of

7ecember !"+!.o ?urrent interest payments of appro4imately ()* +,L million annually.o ?apital infused by 3tihad shall be used by 1et to retire some of the

outstanding debt on the boo5s of 1et.o 6etirement of debt would result in cost savings of IE6 +$"!"" crores

annually.

!. 'rovision of low interest loans to 1et.o 1et currently pays an average annual interest rate of +/.o ith the low interest loans provided by 3tihad% 1et would save

appro4imately ()* " million annually on interest alone.. ?ode )hare Agreements

o 1et currently Fies only to Drussels% Milan and @ondon on its owno Through code share agreements% it can Fy to + other cities.o ?odeshare tra&c surged by $ per cent from +,!%L, passengers in

the third quarter of !"+-+ to +%>+ in the third quarter of !"+-+>. 1et can leverage 3tihadHs international presence

o In 3urope% 3tihad Fies to +L destinations on its own% and to ##

destinations through code share agreements.o The deal would give 1et access to 3tihadHs wide 3uropean networ5.

>. :ne of the main concerns for 1et was the huge fuel costs. It is estimated thatthe deal would result in cost savings of appro4imately #-+"/ in fuel costs.

This would be the case especially in long international operations when the

Fights would now halt at Abu 7habi.Eti*ad Air)ines

+. Access to Indian mar5et considering the large population of the country andthe increasing passenger tra&c03mirates has +/ mar5et share% 3tihad has amere !/ share2


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!. Bigher number of Fights as compared to competitors.03mirates currently Fies+#> Fights wee5ly to +" Indian destinations as compared to 3tihadHs >$ to $destinations2

. Tying up with 1et will help 3tihad provide passengers a substitute hub at Abu7habi as against 3mirateHs 7ubai

. The deal would allow 1et to Fy Fights directly from ! locations in India to Abu7habi and from there to the 3uropean and American destinations.>. 3tihad had a rst mover advantage% as the 1et-3tihad deal became the rst

investment by foreign airline to invest in an Indian airline..

Mutua) Bene=ts

+. ?hange of gauge facilities to Indian airlineso (nited Arab 3mirates 09(A3;2 has agreed to provide the change of

gauge facilities to Indian airlines at Abu 7habi.o This will now permit Indian airlines to change an aircraft without

changing the Fight number.!. After the alliance% 1et would get to use wide body aircrafts to transfer

passengers from 7elhi% Mumbai and Dengaluru to Abu 7habi% and use narrowbody aircrafts for transport to nearby locations. This would lead to betterdemand management.

. ?ater to a large number of destinations collectivelyo ?urrent statistics

i. 1et - L! destinations% out of which !" are internationalii. 3tihad # destinationsiii. 'ost alliance - +" destinations

. 1oint purchasing of fuel% spare parts% etc.>. Travelers Fying by either 1et or 3tihad can claim benets of the 'rivilege

program of the other airline.,. Belped the mar5eting eorts - 3tihad and 1et 8ointly sponsor the Mumbai

Indians I'@ cric5et team and it would have been di&cult for 1et to commitfunds on its own.

L. ?rude oil price has moderated in recent months and the rupee has remainedstable after appreciating from the lows of August last year this has meantlower fuel costs. If the domestic economy improves% more passengers%including those preferring full service carriers% could ta5e to the s5ies. Thatwill bode well for 1et-3tihad

jet etihad deal on merger and acquisitions

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