Indian conglomerate Tata is in talks to buy out troubled carrier Jet Airways in a deal that could create one of the country's largest airlines

• Tata Sons, which is the joint owner of Vistara with Singapore Airlines, is in talks to purchase a controlling stake in struggling carrier Jet Airways.
  
• The Indian conglomerate is reported to be mulling an all-stock merger between SIA Airlines, the parent company of Vistara, and Jet Airways.
  
• However, the deal is contingent on the majority owner of Jet Airways, Naresh Goyal, relinquishing control of the airline.
  
• The chairman of Tata Sons, N. Chandrasekaran, will reportedly make a case for the Jet Airways deal to the rest of the conglomerate’s managing board today.

India’s media outlets have been rife in recent days with news that Tata Sons, one of the country’s largest conglomerates and joint owner of Vistara with Singapore Airlines, is in talks to purchase a controlling stake in struggling carrier Jet Airways. If successful, the combined entity will be one India’s largest airlines, giving Tata Sons a firmer grasp of the country’s aviation sector.

In fact, Tata Sons is reported to be mulling an all-stock merger between SIA Airlines, the parent company of Vistara, and Jet Airways as the potential first step to a two-part transaction, according to the Economic Times. This leg of the deal will likely involve a share swap.

The second part of the deal, however, is where it gets tricky for Jet Airways.

Tata Sons wants Naresh Goyal, the promoter of Jet Airways, to relinquish his control of the company and possibly give up his board seat. As a result, the second step could involve a complete buyout of Goyal’s stake in the combined entity by Singapore Airlines. The impetus is clear. Rather than giving Goyal a fresh round of funds to do as he pleases, Tata Sons wants the ability to implement strict cost control and restructuring measures at the airline.

Goyal isn’t expected to cash out easily, but if that’s the only hurdle preventing a rescue of Jet Airways, it may be the most prudent thing to do. The most plausible scenario will see him and his partner in Jet Airways, Etihad Airlines, end up with a minority stake. The Goyal family currently holds a 51% stake in the airline while Etihad has a 24% share.

The deal has its pros and cons for Tata Sons. By gaining access to Jet’s fleet of aircraft, national and international routes, flight facilities and landing licenses, Tata Sons will become a bigger force to reckon with in the industry.

Vistara, on the other hand, will benefit from the added heft of a number of cross-country routes.

However, Jet is dangerously close to insolvency. Not only will Tata Sons have to take responsibility for Jet’s debts and, but it will also have to pump a significant amount of capital to turn around the troubled airline.

Wide support

It seems that India’s capital markets are in mood to cheer the deal. Jet Airways’ shares on the National Stock Exchange (NSE) rose by 27% on 15 November as reports surfaced that Tata Sons was conducting due diligence on Jet Airways came to light.

In addition, the Indian government is also said to be in favour of the deal. In fact, according to a Bloomberg report, the Narendra Modi administration urged Tata Sons to consider the deal, and possibly add a sweetener in the form of a haircut on Jet Airways’ loans to state-run banks. It is no secret that India’s aviation sector is in the doldrums owing to the recent surge in fuel prices, and the government doesn’t want to risk the failure of a large airline as it heads into election year.

The chairman of Tata Sons, N. Chandrasekaran, will reportedly make a case for the Jet Airways deal to the rest of the conglomerate’s managing board on Friday. The theme of his pitch will be clear. The deal will catapult Vistara from a small carrier operating on popular routes to one of the country’s largest airlines.


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