Even as AirAsia India prepares to apply for a No Objection Certificate to start domestic operations, Abu Dhabi-based Etihad Airways has invested $379 million in India’s Jet Airways. The outlay gives Etihad a 24-percent share in India’s second largest carrier.
Signs of the alliance became clear in February, when Etihad purchased three pairs of Jet’s Heathrow slots through a sale and leaseback agreement for $70 million. It plans to further inject $150 million through a majority equity investment in Jet Airways’ frequent flier program within the next six months. Etihad Airways’ investment in Jet Airways follows the minority equity stakes the airline took in Airberlin, Air Seychelles, Virgin Australia and Aer Lingus over the last year.
A four-fold increase in seats to Abu Dhabi under the Air Services Agreement (ASA) between India and Abu Dhabi announced on April 25–the same day the airlines announced their alliance–has raised the existing entitlement of 13,330 seats to an additional 36,670 seats per week spread over three years. With SpiceJet and IndiGo having requested around 5,000 seats each starting in 2014-15, Jet plans to use 11,000 seats allotted this year to make Abu Dhabi its connection for India-based traffic to Europe and the U.S., possibly signaling a move away from its present hub in Brussels, said an airline official on the condition of anonymity. The alliance will now serve a combined network of 140 destinations, including 52 cities in India.
With 23 Indian airports expected to offer direct or code-share connections to Abu Dhabi, passengers who once needed to fly a domestic leg to travel abroad via India’s international metro airports can now fly directly out of India, raising concern that the Indian airports might lose their hub positions to Abu Dhabi.
“The timing of the increase in bi-laterals has benefitted Jet in its valuation based on the national resource of seats,” Jitender Bhargava, aviation analyst and former executive director of Air India, told AIN. “While this is a good deal for Jet, it isn’t good for the country…If foreign direct investment was brought into the country to help fledgling airlines, why hasn’t privatization been opened for Air India? This massive hike in capacity suggests the makings of a scam.”
“The Indian market is fundamental to our business model of organic growth partnerships and equity investments,” said Etihad president and CEO James Hogan in a statement. “This deal will allow us to compete more effectively in one of the largest and fastest-growing markets in the world.” Current estimates predict the Indian market to grow at a rate of 10 percent annually over the next five years, to 42 million passengers, as the middle-class population reaches some 200 million.