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FIPB clears runway for Jet-Etihad deal

29 July, 2013

India’s Foreign Investment Promotion Board (FIPB) has given a conditional nod to Abu Dhabi-based Etihad Airways’ proposal to acquire 24 per cent stake in the country’s leading carrier Jet Airways (India) Ltd for about $379 million. In Delhi, Arvind Mayaram, Economic Affairs Secretary, told reporters the merger was approved with some riders, but it’s not known what they are.

Last month, the FIPB deferred the case, post which both airlines made some changes to the shareholders agreement. Some of the key changes included reducing the number of Etihad Airway representatives on the 12-member board to two from the earlier three and making India the hub of commercial operations, instead of shifting those to Abu Dhabi. It was also agreed that Naresh Goyal, promoter of Jet Airways, would have the right to deliver the casting vote on any matter.

Also, in the earlier agreement, Etihad was eligible to hire senior international executives for Jet. However, with the new changes in place, it can only recommend those hirings but the decision will rest with the Jet management. It is also said that the new agreement allows all arbitration cases to be taken up in Indian courts than the one agreed in the clauses.

Now that the FIPB roadblock has been taken care of, the deal needs the approval of the Cabinet Committee on Economic Affairs (CCEA) and the Competition Commission of India (CCI). Jet also needs market regulator SEBI’s (Securities and Exchange Board of India) approval since it is a listed company in India.

The shares of the company surged 4.22 per cent on the BSE and closed at Rs 412.20 per unit.

The deal came under heavy regulatory scanner while some politicians also raised objections on account of security and issues concerning a bilateral accord between India and the UAE.

This is the first FDI-compliant deal in the Indian aviation space after the government relaxed FDI in aviation to 49 per cent last September. A successful completion of the deal will boost the confidence of foreign investors in the aviation sector with other airlines like SpiceJet and GoAir also looking at inducting foreign partners.

Etihad is looking to infuse close to $600 million in Jet Airways in various forms. Apart from paying Rs 754.7 per share for the 24 per cent stake, the deal includes payouts in the form of acquiring stake in the frequent flyer programme, the slots in Heathrow, London, and it will also help retire expensive loans. Jet Airways officials indicated during their last results that the airlines would reduce its debt by $500-550 million in the current financial year.

The carrier is looking at a combined network of 140 destinations through code sharing and otherwise, and it will utilise the incoming cash for repayment of high cost rupee loans. The focus for the company in the coming year is to deleverage its balance sheet and attain higher profitability. The airline is looking at a growth of 10-12 per cent in the coming year.

It is also selectively adding flights to profit-making routes such as Gulf and the Middle East and ASEAN routes.

For the financial year 2013, the Jet group reported total revenues of $3515.8 million, but its domestic business saw a sharp decline. In Q4 FY13, Jet group’s total revenues stood  at $826 million, compared to $911 million in the corresponding period, a drop of 9.33 per cent.

(Edited by Sanghamitra Mandal)


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FIPB clears runway for Jet-Etihad deal

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