ED probes Jet Airways' frequent flyer loyalty programme deal with Etihad

The Enforcement Directorate (ED) is investigating whether Jet Airways violated the foreign exchange regulations while signing a $150-million (over Rs 900 crore) deal with its strategic partner Etihad Airways in 2014 for a loyalty programme business.

The probe agency rounded up senior executives, including the airline’s chief financial officer, earlier this week to check the nuances of the more than five-year-old transaction under the provisions of the Foreign Exchange Management Act (Fema), sources in the know said.

In 2014, the Gulf carrier had picked up a 50.1 per cent stake in Jet’s frequent flyer programme. The board of Jet Privilege Private Limited (JPPL) had allotted 50.1 per cent shares to Etihad and the remainder to Jet.

“We have sought information from Jet about the deal and the foreign investment it received for its loyalty business,’’ said an ED official privy to the development. According to him, the investment was made without an approval from the government and Reserve Bank of India (RBI). Any foreign investment beyond 49 per cent requires such a nod.

“The company had taken the automatic route, which is allowed in transport services,’’ the official said. 

However, in this case, the investment cannot be considered under the transportation service category, as it was for the airline’s loyalty programme, he added.

In an email response, Etihad Airways spokesperson said, “Etihad has not been contacted by the Enforcement Directorate. Etihad acquired its share in Jet Privilege Private (JPPL) nearly six years ago in compliance with all regulatory requirements. Any queries relating to JPPL should be made directly to them.”

An email query sent to Jet Airways went unanswered. 

Last month, the services of Jet Airways were grounded due to cash crunch and piling debt. While the deadline for submission of binding bids for Jet revival is May 10, there’s no sign of any serious investor at this point. 

This case was referred to ED after the government had received complaints about a breach in FDI norms. 

Foreign direct investment limit for scheduled air transport service/domestic scheduled passenger airline and regional air transport service was raised a few years ago to 100 per cent, with FDI up to 49 per cent under the automatic route. FDI beyond 49 per cent requires government approval. 

Before the 2014 deal, Jet was managing its frequent flier programme in-house. At that point, it had several tie-ups with hotels, retail and lifestyle brands. Outsourcing the process meant transfer of the points liability to a new company.

An entity that carries out the loyalty programmes needs to report the fair value of the liability of points to the company in its balance sheet.