Tata Sons on Friday said that discussions over acquiring a possible stake in the struggling Jet Airways were only at an early stage and no formal proposal had been made.
“Over the last few days, there has been growing speculation in the print and electronic media about Tata's interest in Jet Airways. We would like to clarify that any such discussions have been preliminary and no proposal has been made,” a Tata Sons spokesperson said in a statement.
Bloomberg reported on Thursday quoting unnamed sources that Prime Minister Narendra Modi had sought Tata Sons' help to rescue Jet Airways.
Amid a sharp rise in fuel prices, depreciating rupee and low fares, India's airlines are struggling to remain profitable. In the July-September quarter, Jet Airways, which is the country's second largest airline in terms of market share, reported a consolidated net loss of Rs 1,261 crore. Low-cost rivals, IndiGo and SpiceJet also posted a loss in the quarter.
Jet Airways had a gross debt of Rs 8,411 crore at the end of September and Amit Agarwal, the airline's deputy CEO and CFO had acknowledged in a conference call with analysts this week that there were liquidity constraints and payments had been delayed to vendors and a section of employees.
The airline had said it continued to engage with financial stakeholders for supporting its funding requirements till it starts generating operational surplus and was “actively” working on the monetisation of assets and capital infusion.
If the Tatas do buy Jet Airways, it would throw a huge lifeline for the Naresh Goyal-promoted airline. However, the funding is not the only issue at the full service airline, but the overall costs that need to be brought down, say analysts.
“I don't think funding alone is the problem right now, its lot about bringing the costs down and you have to keep it in line with the market share that you have,” Ashish Nainan, analyst at CARE Ratings told THE WEEK.
For Tata Sons, acquiring Jet Airways will give it a significantly larger presence in India's aviation industry.
As per available data, Jet Airways has a domestic market share of close to 16 per cent. In comparison, Vistara, which is a joint venture between Tata Sons and Singapore Airlines, and Tata's low cost venture Air Asia India have around 4 per cent market share each. Jet also has a much larger network, not just in the domestic market, but it also flies to several international destinations including, London, Manchester and New Jersey among several others. Neither Vistara nor Air Asia India have started international flights so far.
“With Jet Airways, they will get a substantial hold in the market, given that Jet is by far the largest full service carrier in the country. Tata's market share will go up to around 25 per cent,” said Nainan, adding it will also increase their pricing power.
Jet's stock has rallied sharply in the last 3-4 days as reports suggests a deal with Tata's was getting closer. On Friday, the stock flew 8.1 per cent higher to close at Rs 346.85.