Jet-Etihad deal gets Cabinet clearance

CCI approval being pending won't hamper deal, says aviation minister

The Cabinet Committee on Economic Affairs (CCEA) on Thursday cleared Etihad Airways’ Rs 2,060-crore investment in Jet Airways. The approval comes five months after the two airlines concluded an agreement enabling Etihad to pick up 24 per cent stake in Jet and develop a strategic and commercial partnership with the Indian carrier.

With a host of concerns raised over the deal, the first stake buy by a foreign carrier in an operational Indian carrier, the proposal was deferred several times at the Foreign Investment Promotion Board (FIPB) and clarifications were sought by various agencies, including the ministries of finance, civil aviation and corporate affairs, the department of industrial policy and promotion, and the Securities and Exchange Board of India (Sebi).

The airlines had hoped to conclude the deal by July 31 but the original agreement providing substantial concessions to Etihad and the near simultaneous enhancement of bilateral traffic rights to Abu Dhabi created a storm and delayed approvals. The second transaction closure deadline of September 30 too has lapsed.

“The deal is good for  aviation and for passengers,’’ Civil Aviation Minister Ajit Singh told the media after the CCEA meeting on Thursday. On July 29, the FIPB had approved the investment after the two airlines revised their agreement to ensure that management control did not shift to Etihad. The approval was granted after Jet agreed to meet 11 conditions. Broadly, these pertained to the shareholder agreement and powers of the chairman. The FIPB asked the airlines to rework the agreement to show that both parties could be held responsible for a default or breach of agreement terms.

Changes were made to address Sebi and FIPB concerns on the issue. On September 3, the Cabinet cleared the enhanced traffic rights to Abu Dhabi from 13,000 seats a week to 50,000, allowing increased flights between the two countries and to destinations beyond the emirate. Last week, the Sebi clarified that the revised agreement did not trigger an open offer and ruled that Jet and Etihad were not acting as persons in concert.

The Sebi wants Jet Airways Chairman Naresh Goyal to dilute another six per cent stake before issuing additional shares to Etihad in the interest of more diverse public shareholding. Upon the dilution and allotment of shares to Etihad, Goyal along with his wife Anita will hold 51 per cent, Etihad will get 24 per cent and the rest will remain with the public.

The deal still requires a nod from the Competition Commission of India (CCI). Jet Airways and Etihad offered no comments on the CCEA approval. Singh, however, said approval from the CCI was an ongoing process and the deal would not be hampered by the CCI clearance being pending.

Centre for Asia Pacific Aviation South Asia CEO Kapil Kaul said, "The approval is along expected lines. The deal is already operational with a new CEO in charge and with a large team from Etihad already on ground. Jet is  entering a new era  and  will move from promoter control to a more professional and organised structure and this transition is welcome. Its domestic business remains a big challenge though international business will be a priority.''

Apart from the Rs 2,060-crore investment, the deal allows Jet to collaborate with Etihad on commercial, marketing and sales and technical matters, and expand its network. In all, there would be a cash infusion of $750 million in debt and equity that will help the airline cut down its debt from $2.1 billion to $1.5 billion.

THE HICCUPS THAT WERE

• On control, as the Jet board would have four representatives from Naresh Goyal, who controls 51%, and three from Etihad with half the stake
  The board will now have two members from Etihad; FIPB insisted that Goyal have veto power as chairman
  

 

On the shareholder agreement that envisaged a cooperation board, which meant operational control of the company shifted to this board with 19 foreign members
Jet said it is not a board but a framework for meetings between the parties. It does not undermine the role of the board
 

On network and revenue management functions located in Abu Dhabi at Jet’s expense
The intention is to establish centres of excellence either in India or Abu Dhabi
 

On the appointment and removal of independent directors that required approval of three-fourth votes, which was against Companies Act
Agreement changed to address concern

 

On provisions such as Etihad would source management candidates and lead negotiations with suppliers
Agreement changed to address concern
 

On a lack of clarity over whether the company has to make an open offer or Etihad can take equity through preferential allotment
Sebi said no open offer needed

TIMELINE

April 24 - Jet Airways and Etihad sign strategic alliance. Etihad agrees to pick up 24 percent stake in Jet Airways for about Rs 2060 crore

May 24 - Jet Airways share holders approve sale of stake to Etihad. The airline defers resolutions to amend company's articles of association

May 27 - The two airlines amend shareholder agreement to address shareholder and Sebi concerns on control and ownership

May 29 and 31 - Subramanian Swamy and Jaswant Singh complain to Prime Minister against the deal

June 13 - PMO writes to civil aviation ministry to redraft the cabinet note on Abu Dhabi traffic rights

June 14 - Foreign Investment Promotion Board defers approval to Jet-Etihad alliance

July 2 - PMO defends the Abu Dhabi bilaterals, says there is no division in government on the issue.

July 29 - FIPB gives a conditional approval to Jet-Etihad deal

Sept 3 - Cabinet approves the enhanced traffic rights on India-Abu Dhabi route

Sept 16 - Swamy files a petition in Supreme Court against the deal, demands CBI probe

Sept 25 - Sebi writes to Swamy, says the agreement will not trigger open offer, but asks Jet promoters to divest 6% stake before allotting the shares to Etihad in the interest of corporate governance