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Jet gets Rs 1,000 crore from Mubadala Development Co.

The Business Standard reports that Indian carrier Jet Airways is believed to have struck a deal last week with west Asian investment agency Mubadala Development Company for a funding of Rs 1,000 crore (approx $ 200 million). The instrument of funding, however, has yet to be formalised.

Mubadala is wholly owned by the government of Emirates of Abu Dhabi.

The tenure of the loan, the interest rate and other details were not immediately available.

Mubadala owns Abu Dhabi Aircraft Technologies, which provides aviation technical services to carriers (Kingfisher Airlines is a client). The agency has also bought 35 per cent in aircraft manufacturer Piaggio Aero Industries. Mubadala also came into the limelight for buying 5 per cent in Ferrari.

The deal comes at a time when the aviation industry is facing its worst crises and accessing funds is becoming a major challenge. Aviation experts said the money Jet has raised is sufficient for the airline to continue to fly for at least another year.

Jet Airways had announced a loss of Rs 384 crore for the second quarter of this fiscal. The airline is also struggling with overdues to the state-owned oil marketers, airport authorities and operators. Jet’s outstanding to the oil firms is Rs 1,057 crore. It has also ordered 10 Boeing 777-300ERs, for which it needs Rs 4,000 crore, say experts.

With a market share of around 30 per cent, Jet recently tied up with its main rival Kingfisher Airlines, under which it will cut costs by sharing ground-handling facilities, and pilots, and rationalise routes.

The airline has been looking at ways to raise funds, including an aborted rights issue, private placement and by approaching banks in India. Negotiations with a south Indian bank came close to a culmination.

The Economic Time is reporting that Jet Airways is in advanced stages of discussions with Temasek Holdings of Singapore to divest 10% of its stake for Rs 250 Crore ($ 50 million).

The next six months are considered vital for the survival of the airline industry in India. Raising working capital is the highest priority during the economic downturn caused by the worldwide credit crisis and financial meltdown.

It is estimated that just the two major private airlines, Jet and Kingfisher, will require about Rs. 1,000 Crore each to survive the next two quarters.

The funding from Mubadala appears to be a long term dedicated investment, when compared to a hot and speculative investor.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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