Tata’s plans to acquire Jet Airways

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Tata’s plan to acquire cash-strapped Jet Airways is facing challenges as the group’s top brass have red-flagged ‘reputational issues’ of Naresh Goyal-led airlines, including its funding sources.

Jet Airways’ high debt and regulatory issues such as inquiries by several ministries and government agencies over the years have weighed in, sources told the paper. The airline has a debt of Rs 8,400 crore as of September-end, including Rs 1,800 crore of aircraft-related debt.

This may have an adverse impact on the company’s plan to seal the Tata-Jet deal.

During the company’s board meeting on November 16, Tata Sons said, ‘any such discussions have been preliminary, and no proposal has been made’. Tata Group has, however, set-up an internal panel to carry out due diligence on the financial aspects and funding of Jet Airways.

The Tatas will take a decision to acquire Jet Airways based on the findings of the committee, sources told the paper.

It may set some more conditions for the transaction with Jet Airways to fructify, the report said. The group may insist that Goyal sell his entire 51 percent stake in the airline and relinquish the board positions held by him and his family.

Naresh and wife Anita Goyal own 51 percent in Jet Airways. UAE-based Etihad Airways holds 24 percent stake.

Tata Sons may also seek a strict non-compete agreement with Goyal, sources told the paper. Under a non-compete agreement, one party agrees not to enter into or start a similar profession or trade in competition against another party. This would mean that Goyal may have to step away from the business.

“The Tatas are likely to insist on heavy non-complete clause with no travel-related business participation. This will be insisted along with a no-board presence of Goyal or his family members. Goyal may not agree to some of the clauses,” a source told the paper.

Tata Trusts Chairman Ratan Tata’s views on the deal may also decide the direction in which the deal may progress, the report said.

At the board meeting, Tata Sons discussed whether the proposed acquisition would be in line with the group’s aviation plans.

Media reports said Tata Sons Chairman N Chandrasekaran is keen to work out the deal as it would strengthen the group’s position in the aviation business and give it much-needed heft.

Jet Airways has a considerable presence on the ground with its 124 aircraft that operate nearly 700 flights a day. The airline flies to and from 66 destinations and has a market share of 15.8 percent

As of now, Tatas run two joint airlines in India: Vistara in partnership with Singapore Airlines and AirAsia India with Malaysia’s AirAsia. In Vistara, Tata Sons holds 51 percent stake and 49 percent of AirAsia India.

Analysts told the paper that Tatas may not rush into an acquisition and the company may drive down the purchase price by prolonging the transaction.

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