FIPB gives conditional nod for Jet-Etihad deal
29 July 2013
The Foreign Investment Promotion Board (FIPB) today gave conditional approval for Jet Airways' sale of a 24 per cent equity stake to Gulf-based carrier Etihad, for around Rs2,058-crore ($379 million).
The deal by Abu Dhabi's Etihad Airways to buy a stake in Jet Airways is the first foreign investment by a foreign airline in India's domestic aviation sector, after the government opened up the aviation sector to FDI.
While the government allows foreign airlines to own up to 49 per cent in an Indian carrier, the Naresh Goyal-led carrier opted to limit the stake sale at 24 per cent to avoid the 25 per cent trigger beyond which any sale of stake would attract the open offer clause of the takeover regulations.
The Jet-Etihad deal still needs approval from capital market regulator Securities and Exchange Board of India (SEBI) as well as the group of ministers before it can proceed.
A final approval for Etihad's purchase of 24 per cent of Jet is expected to trigger further deals in the Indian aviation sector.
Foreign capital is seen as a boon by both the government and most of the country's airlines that are burdened with heavy losses and mounting debt, mainly due to the high cost of fuel.
A stake in an Indian carrier gives foreign airlines access to one of the world's fastest growing air travel markets with huge untapped potential.
Close on the heels of the Jet-Etihad deal, low-cost East-Asian carrier AirAsia entered into a deal with the Tata group and Arun Bhatia's Telestra Tradeplace Pvt Ltd for setting up an India-based joint venture, to tap the potential of Indian cities, especially in the smaller emerging cities.
Meanwhile, low-cost carrier SpiceJet is reported to have received enquiries form unidentified potential investors. Almost all other airlines in the country, including GoAir and IndiGo, are potential targets for foreign investment.
FIPB had earlier sought details of the management structure and effective control of Jet Airways post merger before making a decision whether to approve or reject the deal.
SEBI had also threatened to invoke the open offer clause after Jet ceded four seats on its board to Etihad to save the deal.
Etihad has since agreed to reduce its representation on the board of Jet to two.
Jet's founder group will appoint four board members and will have the right to nominate the chairman, whereas Etihad will appoint a vice chairman, according to the document.
The deal is still facing political opposition and at least one member of Parliament, Subramanian Swamy has raised the issue of government favouring the deal with allocation of extra seats in bilateral aviation pact.
The deal, once cleared by SEBI and the government as well, will provide Jet Airways with the much-needed cash to pay off its debt while opening up a vast new market for Etihad.