Jet Airways-Etihad deal passes initial hurdle

FIPB gives nod with some riders attached.

By R. Chandrasekaran

CHENNAI: The deal struck between India-based Jet Airways and the Abu Dhabi-based Etihad Airways has now passed the Foreign Investment Promotion Board (FIPB) process. However, the nod has come with some riders. This is expected to boost confidence among foreign investors to invest in Indian companies.

The Middle-East airline company had to climb down significantly to ensure that the $600 million investment in Jet Airways gets through. Only last month, the FIPB deferred its decision on the deal and sought more clarifications for considering their proposal.

Both the companies struck a deal in April, paving the way Etihad to acquire 24 percent stake in Jet Airways. The deal raised several concerns, including political, and the inspection by the regulator, Securities Exchange Board of India (SEBI), delayed the execution of the agreement.

At the time of striking a deal, both the airline companies also reached commercial cooperation agreement (CCA) that allowed Etihad to source right candidates for the senior executive posts from Jet itself. The regulator has reportedly felt that the Abu Dhabi company was given an undue advantage despite having a minority stake. The deal has now been watered down to advice only for right candidates.

Another clause in the old CCA to hit a road block was the location for revenue management and network functioning. Etihad wanted it to be co-located in stages. The regulator’s concern seems to be genuine and was in tune with the Indian aviation rules since it included among other things pricing, scheduling and interline pricing. The revised CCA indicates that revenue and network management will be managed from Mumbai Jet Airways.

Similarly, the Abu Dhabi company had to reduce the number of its representation in the 12- member board to two from their initial ambition of three. Etihad had also allowed Jet Airways founder chairman the right to deliver a casting vote on any issues.

The FIPB nod has come after the revised CCA has been shared with various ministries and the market regulator during the weekend. The revised CCA indicates a significant climb down by Etihad. However, investors wonder how Jet Airways gave such a sweeping upper hand to Etihad because of its minority stake holder status.

To contact the author, email to rchandrasekaran@americanbazaaronline.com

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