Jet-Etihad deal approved by FIPB with condition

The government gave a conditional clearance to Jet Airways to sell 24% stake to Abu Dhabi-based Etihad Airways for Rs. 2,058  crore after Etihad submitted an amended Shareholders Agreement (SHA) and Commercial Co-operation Agreement (CCA). Now, Jet-Etihad will have to submit new articles of association before the deal is put before Finance Minister P. Chidambaram for approval and then brought before the Cabinet Committee on Economic Affairs (CCEA).

What are the Terms and Conditions (T&C) in Jet-Etihad deal?

As per the T&C, Jet Airways need to seek prior approval of the government for any changes to be made in the Shareholders’ Agreement (SHA) with Etihad and also for any change in shareholding pattern of the company. The Foreign Investment Promotion Board (FIPB) clearance also came with a rider that  all shareholder disputes and disputes under the SHA would have to be adjudicated under Indian law.

As per the latest clarifications, Etihad will take 2 seats on the 12 member board instead of three as previously proposed. The Indian partner, Naresh Goyal, besides appointing four board members, will have the right to nominate the chairman, whereas Etihad will appoint a vice-chairman. Jet has also dropped a clause from its earlier application of shifting revenue management to Abu Dhabi.

What was the issue with the Jet-Etihad deal?

Indian carrier Jet Airways had recently announced that it intends to sell its 24% shares to UAE operator Etihad Airways to attract the $379-million investment rising form the deal. But the deal was stuck after the Foreign Investment Promotion Board (FIPB) and stock market regulator SEBI raised questions about ownership and effective control of the Indian airline passing into foreign hands. There were apprehensions from Indian side that the deal would give the key controls of Jet to Etihad. SEBI had highlighted some clauses of the CCA that might give an upper hand to Etihad. In this regard, SEBI had sought clarification from Jet on some matters of the prospective deal including choosing candidates for senior management positions, consolidation of sales office and general sales arrangements to support sales for Jet in the UAE. Also the right of Etihad to appoint a vice-chairman will not have any significant impact on the issue of control. Indian government wanted to ensure that the ownership and major control of the carrier remains with Jet Airways.

Why Jet-Etihad deal is important for Jet?

The deal is important to Jet, which is facing significant financial challenges. The deal will also help the Indian civil aviation industry by enhancing capacity, increasing competition and bringing down airfares.

Month: Current Affairs - July, 2013