First stake by foreign carrier in the Indian aviation sector.
By Rajiv Theodore
NEW DELHI: It was a phone call in July last year by Jet Airways (India) Ltd. Chairman Naresh Goel to his friend James Hogan, president and chief executive of Etihad Airways PJSC that culminated in Thursday’s final nod by the Indian government.
Goel spoke to Hogan about the possibility of a policy change that would allow overseas airlines to invest in Indian carriers and if such a change took place would the United Arab Emirates’ (UAE) national carrier be interested in a deal with Jet Airways.
That phone call was the start of a process that ended with the cabinet giving a green signal to Etihad Airways to invest in local partner Jet Airways (India) Ltd. after the modified airline ownership rules last year.
This is the first stake buy by a foreign carrier in an operational Indian carrier, the proposal was deferred several times at the Foreign Investment Promotion Board (FIPB) and clarifications were sought by various agencies, including the ministries of finance, civil aviation and corporate affairs, the department of industrial policy and promotion, and the Securities and Exchange Board of India (Sebi).
The deal gives Abu Dhabi-based Etihad a toe-hold in the country’s aviation market which is forecast to grow three fold to 425 million-passengers by 2020. India’s aviation sector has got a fresh lease of life with two other deals, with Singapore Airlines and Malaysia’s AirAsia.
The deal would mean three pairs of takeoff and landing slots at London Heathrow airport bought for $70 million in February and the $150 million acquisition of a majority stake in the Jet Privilege frequent-flier program.
The long drawn negotiations sometimes resembled proceedings in the Indian Parliament, with teams staging walkouts. While the Etihad Airways team walked out of the negotiations once, Jet Airways representatives walked out at least thrice over differences on the valuation. Jet Airways sought a valuation of $2 billion while Etihad Airways valued it at a mere $500 million. Etihad wanted to pick up 49% of Jet Airways for $250 million, but Jet Airways was only willing to part with a 24% stake.
Etihad, which has holdings in Air Berlin Plc, Virgin Australia Holdings Ltd., Aer Lingus Group Plc, Serbia’s Jat Airways and Air Seychelles Ltd., will not only help improve the financial position of Jet Airways but also bring several operational benefits, the Associated Chambers of Commerce and Industry (Assocham) said.
Jet Airways is the first Indian carrier to benefit from a September policy change by the government that allowed foreign airlines to buy as much as 49% of domestic ones. The deal is subject to government approvals.
Goyal had seen the change coming after Ajit Singh, leader of the Rashtriya Lok Dal, took charge of the civil aviation ministry in December 2011 from the Congress Party’s Vayalar Ravi. Kingfisher Airlines Ltd.’s chairman Vijay Mallya was spearheading a campaign for investment by foreign airlines as he sought a partner for his cash-strapped and debt-laden airline, and it seemed a matter of time before policy would be tweaked to allow a lifeline to the troubled aviation industry.
The transactions with Etihad means Jet Airways needs to change its shareholding pattern as Goyal, who lives in London as an NRI, holds his stake through an overseas corporate body (OCB). Goyal’s Tail Winds, registered in the Isle of Man tax haven, owns 80% of Jet Airways and the balance is held by public shareholders. India allows 49% foreign investment in an airline and 100% investment by NRIs.
Further relaxing of aviation rules and regulatory environment could even see network operators such as British Airways’ parent International Consolidated Airlines Group SA make way into India, says Donald O’Neill, an analyst at Goodbody Stockbrokers in Dublin.
“Jet Airways would be one of the most important investments for Etihad,” said John Strickland, director of JLS Consulting Ltd. in London.
Meanwhile, on Friday, Subramaniam Swamy filed litigation in Supreme Court seeking a CBI probe against the government officials who had cleared the deal. He questioned the Center’s decision to execute the agreement in favor of Abu Dhabi under the existing Air Service Agreement between the governments of India and the UAE.
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