Jetihad cleared for take off

Clearing the decks for the biggest FDI in Indian aviation, the Foreign Investment Promotion Board (FIPB) gave a conditional go-ahead to the $900-million Jet-Etihad deal. The two airlines have been asked to drop the clause that their shareholders’ agreement (SHA) will be governed by British law and instead put it completely under Indian laws. However, the condition that any dispute arising in the SHA will be referred to an arbitrator in London has been accepted as third-party arbitration is commonly accepted globally.
Once this change is made and the amended pact is cleared by the Cabinet Committee on Economic Affairs, Etihad can pick up 24% stake in Jet for $379 million (about Rs.2,060 crore) and use the remaining amount for buying share in Jet’s frequent flyer programme, three slots at London Heathrow and giving Jet low-cost debt.
“We have approved (the Jet-Etihad deal) with some conditions,” economic affairs secretary Arvind Mayaram, who also heads FIPB, told reporters. The final approval will be given by the cabinet committee of economic affairs.
The deal had become controversial because the aviation ministry gave away additional flying rights of 37,000 seats (spread over three years) to Abu Dhabi on April 24, just hours after Jet and Etihad announced their tie-up. A number of lawmakers opposed the deal, calling the liberal grant of bilateral as the real deal clincher at a massive premium for Jet.
The FIPB had last month deferred approval of the deal following fears raised by it and market regulator Sebi that Jet’s “effective control and ownership” would be ceded to Etihad under the terms of the original SHA. Following those concerns, Etihad substantially diluted its control over Jet in the amended SHA that was submitted to the FIPB last week.
Now, any change in the Jet-Etihad SHA or shareholding pattern will have to be approved by the government. Etihad will have two directors in the 12-member Jet board and not three as proposed earlier. Jet promoter Naresh Goyal will have a “casting vote on any matter”. The place of business of Jet will remain in India and not shifted to Abu Dhabi.
With Etihad’s funding, Jet proposes to reduce its Rs.12,500-crore debt burden. The airline is going to enhance its 100-strong fleet size and launch flights to Europe, North America, Africa and Middle East from Abu Dhabi — which will be connected to 23 Indian cities on Jet’s network. “We are going to build the strongest Indian MNC brand in Jet,” Naresh Goyal had said after the April 24 deal with Etihad.