According to The Economic Times, the Tata Group and Naresh Goyal-promoted Jet Airways are inching towards a two-step transaction, the first leg of which could see the merger of Jet Airways with Tata SIA Airlines (JV between Tata and SIA that operates Vistara). The second step could involve the purchase of the Goyal family’s stake in the combined entity by SIA.

According to sources, Jet Airways may first merge with Tata SIA through a share swap. If successful, the transaction will give Tata SIA Airlines (51% owned by Tata, 49% by SIA) landing rights, routes and related infrastructure amenities of Jet.

Cash strapped Jet has been in talks with investors to sell assets to stay afloat – it has made a profit in only FY16 and FY17 since FY08 (year end in Mar).

Meanwhile, the market is likely to focus on the structure of the deal (should there be one), as well as the plans of Tata SIA Airlines to turn the combined entity into a profit-making one.

We maintain our BUY and FV estimate of S$10.71 on SIA given its low valuations.

Source: OCBC Research - 16 Nov 2018