Experts say Etihad will exercise control over Jet Airways

Govt cleared the decks for the Rs 2,060 crore investment by Etihad Airways, FIPB gave a conditional nod

Gulf-based Etihad Airways, which is in the process of acquiring a 24 per cent stake in Jet Airways (India) Ltd, will hold influence and control over the Indian carrier despite modifications to the  shareholder and commercial pacts signed between them, corporate governance and aviation experts say.

The government cleared the decks for the Rs 2,060-crore investment by Etihad and the Foreign Investment Promotion Board (FIPB) gave a conditional nod to the deal on Monday. This was done after the two airlines watered down contentious clauses regarding control and management. However, some experts feel not enough has been done.

J N Gupta, former executive director of the Securities and Exchange Board of India (Sebi) and founder of SES, a proxy advisory firm, said; “The deal may appear compliant in letter and on paper. However, it will only be known in future what kind of control Etihad continues to exercise over Jet.” It was Gupta's firm that first raised the issue of effective control of Etihad and had asked shareholders to oppose the proposal to revise the airline’s Articles of Association.

Kapil Kaul, chief executive, South Asia, of aviation consultancy Centre for Asia Pacific Aviation (Capa), too, believes Etihad will continue to influence Jet's operations upon the share acquisition. “The FIPB approval is on expected lines. This is the first major FDI (foreign direct investment) deal for aviation, which is significant for the sector and Capa welcomes it. However, I continue to believe the very liberal and exclusive bilateral granted was key to the valuation and this deal.”

The civil aviation ministry’s decision to give additional flying rights of 37,000 seats to Abu Dhabi in April soon after Jet and Etihad announced their tie-up had triggered a controversy.

“The manner of allocating bilaterals reflects poorly on how we govern India’s aviation system. We see Etihad having a major role in Jet’s operations and management going forward even though shareholders’ agreement has been revised. Earlier in 2008-09, W L Ross in Spicejet had very significant role in Spicejet’s strategy and future direction even with under 15 per cent share holding and one Board seat,” Kaul added.

Saj Ahmad, an aviation expert in London, said: “Through its 24 per cent stake, Etihad still has the muscle to influence the strategic direction of Jet Airways.  When you look at the success Etihad has had in turning around Air Berlin and Air Seychelles, (promoter Naresh) Goyal and Jet Airways will almost certainly welcome such input that gets their airline operating in the black.”