FIPB Cleared Jet-Etihad Deal; But With Certain Conditions

The Foreign Investment Promotion Board (FIPB) on 29 July 2013 cleared the proposal of Jet Airways to sell 24 percent stake to Abu Dhabi-based Etihad.

Created On: Jul 30, 2013 15:22 ISTModified On: Jul 31, 2013 11:06 IST

Foreign Investment Promotion Board (FIPB)The Foreign Investment Promotion Board (FIPB) on 29 July 2013 cleared the proposal of Jet Airways to sell 24 percent stake to Abu Dhabi-based Etihad. With this clearance, Jet-Etihad deal has become the first one after the Union Government of India relaxed the FDI rules for aviation sector in the year 2012. The deal will now have to cross the hurdle of Cabinet Committee on Economic Affairs (CCEA) for final approval.

The Economic Affairs Secretary Arvind Mayaram announced that the Jet-Etihad deal was approved after the FIPB meeting, but with certain conditions.

Conditions Imposed

• According to the first condition, both Jet Airways as well as Etihad need to settle any dispute between them under the Indian law and not under the English common law as it was proposed originally.
• Apart from this condition, both the companies also need to get the prior FIPB approval for the purpose of change in the shareholding structure.

The approval for Jet-Etihad deal was stuck at FIPB on the grounds of various concerns such as whether Jet Airways would retain its effective control, including the retain of Indian owner or not. Also, it was a matter of concern whether Jet Airways would change the place of its business or not.

According to the revised agreement, it was agreed upon that all the committees formed by these two airlines for the operational as well as administrative functions would remain advisory in nature. The agreement also made it clear that Etihad would only make recommendations of the Senior Executives for appointments at Jet Airways.

Now, Etihad will have two directors on the Board which includes 12 members. Jet Airways would have four, which would in turn give more authority to the Indian promoters. The resolutions of the Board will be passed by a simple majority. The Veto power as well as the voting powers will vest in the Chairman, Naresh Goyal.

Impact of the Jet-Etihad Deal

• The deal is said to be very important for Jet Airways, which at present, is facing significant challenges in terms of finance.
• The deal will enable the Indian civil aviation industry, because there will be an enhanced capacity, bringing down of airfares as well as increased competition.
• The deal, after the final approval, will instill more confidence on a global level in the airline industry of India.
• The deal will primarily benefit the partners, while at the same time, improving the prevailing investment climate of India.
• The deal is also very good for the civil aviation sector as well as passengers in India. There is a need of foreign investment in the infrastructure sector of India. The deal will therefore reaffirm the confidence of the investors in India’s growth.
• The Jet-Etihad deal would garner approximately 2058 crore Rupees or 379 million US dollar for the Jet Airways, which in turn, will be used by it for paying off the debts as well as providing better passenger connectivity.
• The deal will enable the passengers from 23 cities of India to get direct international flights.
• The deal will also enable the passengers in India to avail the frequent flyer programmes of Jet Airways and Etihad.

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