Jet-Etihad deal faces regulatory hurdles as deadline nears

The agreement yet to got approvals from Sebi,FIPB, and CCEA

The Jet Airways-Etihad deal is likely to miss its transaction closure deadline in the absence of various regulatory approvals.

In April, the two airlines signed a deal under which Abu Dhabi-based Etihad agreed to take a 24 per cent stake in Jet. The agreement has a clause called the 'long stop date', that all regulatory approvals would be secured by July 31.

These are necessary for conclusion of the transaction. While the two sides can extend the deadline, the agreement also allows for termination of the deal if the conditions precedent (regulatory approvals) are not met.

The Rs 2,060-crore deal and allotment of additional traffic rights to Abu Dhabi has turned controversial. Opposition party MPs and politicians have demanded that the additional traffic rights be scrapped. Various sector regulators are seeking a revision in the agreement, feeling it confers too many powers on Etihad. The agreement requires approval from the Securities and Exchange Board of India, Competition Commission of India, Foreign Investment Promotion Board (FIPB) and, finally, the Cabinet Committee on Economic Affairs. So far, the airline hasn't secured approval from any.

"Due to regulatory concerns, the airlines have to revise the agreement and make fresh applications to Sebi and FIPB, to show the suggested amendments have been incorporated,'' said a source familiar with the development. The controversy surrounding the deal, the political opposition and regulatory pressure has caused some anxiety in Abu Dhabi but Etihad is not pulling the plug yet, he added.

"Both parties are working towards achieving the regulatory approvals before the long stop date of July 31 stipulated in the agreement. We are not in a position to comment further at this time,'' went an Etihad Airways statement.

The shareholder agreement between the two airlines was first revised in May to assuage the regulatory concerns. More changes are expected to fulfil these requirements. FIPB has raised concern over the clauses stating a three-fourths majority is required to pass board resolutions and the shifting of the revenue management office to Abu Dhabi.

One key changes made in May ensured Etihad would not have the unilateral right to terminate the commercial cooperation agreement; this right is to now be held by both sides. The other change pertained to constitution of the nomination committee of the board, which would make key board and management appointments.

Civil aviation minister Ajit Singh told Business Standard last week his ministry had raised concerns about the shifting of the office to Abu Dhabi. "According to the rules, two-thirds of directors of the company have to be Indian citizens. Further, substantial ownership and place of business has to be in India and the effective control has to be in Indian hands," added Singh. He said FIPB would check if shifting of the revenue management office to Abu Dhabi violated the rules.