Flying away: Why Etihad won't invest in debt-laden Jet Airways anymore

An Etihad Airways plane takes off
In 2016, Etihad Airways decided on a marketing plan to support fashion week across 17 cities globally and invited its seven airline partners to be co-sponsors. Air Berlin joined Etihad in hosting the Mercedes-Benz Fashion Week and Alitalia joined in with Milan Fashion Week. Its other partner, Jet Airways, was invited to come on board as a co-sponsor for Lakmé Fashion Week. “No thanks,” said Jet CEO Naresh Goyal. 

The anecdote is told by a former Jet executive to illustrate Goyal’s dislike for tagging along with Etihad and his determination to chart an independent course for the airline he founded. It is also illustrative of the underlying tensions that have marred the tumultuous relationship between the two airlines since 2013, when Etihad bought a stake in Jet to the current moment when Etihad has decided to sell it rather than continue supporting the troubled airline.

It was all very different in 2013. With an aggressive plan to build a global network through alliances and financial investments in order to take on ‘Big Brother’ Emirates, Etihad bought a 24 per cent stake in Jet for $397 million.

It also forked out $70 million to help Goyal (who was in debt to the tune of $2 billion) by buying his Heathrow Airport slots and leasing them back to him. Etihad pumped in another $150 million to pick up a 50.1 per cent stake in Jet Privilege, which ran the frequent flyer programme.

But Jet again got back into debt and is currently steeped in debt of over Rs 8,000 crore and is defaulting on payments. This time round, far from helping Jet out, Etihad told Jet’s lenders last week that it was selling its stake in the airline for just one-sixth of the price.  How did a promising relationship nosedive? 

To be fair, Goyal and Abu-Dhabi based Etihad did enjoy a reasonable honeymoon. The latter was an insignificant player in the country, with a mere 2.2 per cent share of the Indian market in 2013-14, against Emirates’ 11 per cent. Etihad had 59 flights, compared to Emirates’ 165. Etihad’s plan was to break Emirates’ stranglehold of the Indian-West Asia market by creating an attractive alternative. Passengers from India could now fly from India and use Abu Dhabi instead of Dubai as a hub to travel to the US, Europe, or Africa through Etihad’s partnerships with Air Berlin, Alitalia, and Darwin Airline SA, to name only a few.

Goyal used his political clout with the United Progressive Alliance government to change the rules to benefit them both. He persuaded the civil aviation ministry to increase bilateral flying rights between India and Abu Dhabi by nearly fourfold, from 13,300 seats per week to 53,000. 

By 2015, Jet was back in the black and its dependence on Etihad for money waned. In the December quarter of 2015, Jet made a profit of Rs 467 crore.

As for Etihad, by the quarter of June 2017, it had gained 5.2 per cent of the Indian international market, closing the huge gap with Emirates, which had 10 per cent.  

But it was not to last. In the quarter of December 2018, its share fell to 3.3 per cent. 

The explanation for what went wrong between the two airlines lies in those conflicting pulls mentioned earlier, only they were much more significant than whether to sponsor fashion weeks or not.

For example, while Goyal was determined to maximise his independence, Etihad wanted to run Jet’s operations and was keen for Goyal to align his strategy with its own. A cooperation board was set up with 19 foreign members. In the areas of network and revenue management, Etihad had a key role. The top team was led by Etihad employees and insiders say there were constant tussles between Goyal and the Etihad team on how to run the company. In 2016, Goyal replaced the Etihad team with his own people. The two also disagreed over Abu Dhabi as a hub. Goyal had no intention of integrating completely with Abu Dhabi. In fact, he moved Jet’s European hub from Brussels to Amsterdam, going against Etihad which had wanted him to move it to Düsseldorf, which served as hub for its partner airline, Air Berlin.

Tensions came to a head in 2017 when Goyal signed an alliance with KLM-Air France and Delta, creating an alternative hub for Indian passengers who wanted to go to Europe or the US through Amsterdam and Paris rather than Abu Dhabi or Düsseldorf. Apart from its frustrations with Jet, Etihad has been struggling in other ways too. Its global expansion plans have floundered, its losses are mounting, and it has been forced to shut down unprofitable routes. In fact, there is even talk of a merger between Etihad and Emirates.  

In this situation, Etihad is neither in a position nor in a mood to repeat history by injecting more cash into Jet or helping Goyal as it did earlier, even if he were to cede control. In any case, the government wants an Indian player to run the airline.

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