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Your opinion: Question of the week: Is Jet Airways too financially weak? What should existing investors do?

by Devesh Agarwal

Majority of Jet’s A330 fleet parked at New Delhi’s IGI airport

In what is not a very uncommon development, The Economic Times reports, India’s financial markets’ watchdog, the Securities Exchange Board of India, better known as SEBI, has written to the Foreign Investment Promotion Board (FIPB), the approver of FDI proposals, expressing concern on the agreement to sell a 24% stake by Jet Airways to Etihad Airways PJSC. SEBI feels that the agreement structure allows India’s largest private airline by revenue, to pass into foreign hands, which is not allowed as per the existing law.

Over the last one month the deal has been question by various ministries, regulators, boards, authorities, stake-holders, and members of Parliament, amongst others. Putting aside partisan motives, one obvious fact is emerging; the agreement appears to be extremely lop-sided in unduly favouring Etihad. You can read our earlier analysis highlighting some of the lop-sided provisions of the agreement.

While the debate on these provisions continues, we want to question the financial condition of Jet Airways itself. Without doubt, the debt levels of Jet Airways are high enough to be classified as scary.

However, the question at hand is; what insight does this agreement offer in to the situation at the Indian carrier? Is the situation so dire that the promoters of Jet willing to let go of their airline for a mere $379 million? or did Mr; Hogan’s team simply out-negotiate that of Mr. Goyal’s?

As its possible control of Jet Airways is whittled away, by the regulators, at point would Etihad walk away from the deal? There are already rumblings, that come July 31, the first deadline for the deal, Etihad might reduce the amount of premium it is willing to pay for Jet. In which case, will Goyal still be interested?

And surely, exiting investors must be watching the scene nervously and wondering what should they do? Hold on? Or jump ship?

Share your thoughts via a comment.

Disclosure: Devesh Agarwal is a shareholder in Jet Airways.

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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