Jet-Etihad Deal Hits Another Roadblock

The proposed $379 million Jet-Etihad deal, which would make the Abu Dhabi carrier a stakeholder in the former, hit another roadblock yesterday after the Indian capital markets watchdog expressed reservations about the deal, the Indian media reported.

The Securities and Exchange Board of India (Sebi) has written to the Foreign Investment Promotion Board (FIPB) that the control of the Jet Airways, the largest airline in terms of revenue, could pass into the hands of the foreign investor due to the manner in which the deal has been structured.

As per a previous announcement by Etihad, the airlines were working towards meeting a July 13 deadline to win the regulatory approvals from the Indian authorities. However, that deadline seems to be ambitious considering the latest concern by Sebi.

The market regulator expressed its reservation of some veto powers enjoyed by Etihad in the deal, as those signified “an element of control”, the media reports said. Indian rules define control as the right to appoint the majority of directors in the board or involve themselves in the management decisions due to their shareholders status.

FIPB will consider the Jet-Etihad deal on July 29 and has announced that it will consider Sebi’s views.

“Red tape, apathy and whatever else is done behind the scenes, has hindered, not fostered growth and it is likely that if the Jet-Etihad deal is nixed there will be even less reason for Etihad to come back and invest and it will spook other investors away from Indian aviation too – not that there’s a long queue anyway waiting to part with their money,” said Saj Ahmad, chief analyst at StrategicAero Research.com.

The matter is still under scrutiny by Sebi and if the deal has been found to propose a change of control, then Sebi would ask Etihad to make an open offer for acquisition. However if such an offer is made, it will run counter to the FDI policy that stipulates that all control must remain in Indian hands.

If the deal clears Sebi’s assessment then it would need one final approval from the cabinet panel.

Etihad agreed in April to buy a 24 per cent stake in Jet that would provide the struggling Indian carrier with some much needed cash while being instrumental in making Abu Dhabi an aviation hub.

As per a previous Reuters report, sources have hinted that the Abu Dhabi government was still keen on taking the deal forward despite a deadline miss with sources stating that they are keeping all the options open.

“If the deal goes ahead, it would allow better access across the GCC for travellers out of India. If the deal does not materialise, then the likes of Jet Airways will be saddled with other Indian airlines who simply cannot effectively compete with bigger Arabian airlines and they will continue to lose market share,” said Ahmad.

“The Indian economy probably wouldn’t benefit either way since less than one per cent of the population uses air travel, so at best, there will only be a ripple effect affecting demand.”

Ahmad also points out that the resignation of the Spice Jet chief executive Neil Mills has put Indian aviation in a “putrid mess”, making investors shy away from the region.

As of now, Sebi is yet to sound a decision in this matter as the Jet and Etihad have only signed an MoU but not finalised the deal.