Jet-Etihad deal - Why investors should stop rejoicing over the deal

Questions remain on the alleged govt support to the deal despite FIPBs approval on Monday

The masked magician while revealing on how a man disappears when he enters a cabinet, showed that the person was hiding behind a secret door in the box. Something similar has happened to the Ethiad’s directors in the Jet-Etihad deal. Though for the sake of our government, the number of Etihad directors has come down from three to two, it is hard to believe that Etihad would just sign the cheque without having a control on its money.
 

The real test  of the survival of the Jet Etihad deal is to remove the bi-lateral seat sharing alliance between India and Abu Dhabi from the equation. Under no circumstances will Etihad then be interested in investing in Jet Airways, at least not at the valuations it did. Etihad had earlier rejected Jet Airways proposal at a valuation of Rs 1,780 crore saying the price was too high for a loss making company with a negative net worth. Yet it ended up paying Rs 2,050 crore for a 24% stake. The only differentiator was the seat sharing alliance. And yet we are told to believe that the two have no bearing on each other.

 
 

The Foreign Investment Promotion Board (FIPB) cleared the Jet Airways – Eithad deal only after government changed the rules in the middle of the game.  Aviation Minister Ajit Singh rejoicing over the clearance was a big give away on how the deal was cleared.
 

Jet Airways and Etihad on their part modified the shareholder agreement in such a way that it would comply with Indian norms, at least on paper. In reality, the duo revealed too much when they played their first hand. Irrespective of the number of directors Etihad has on the board, it is clear who will be calling the shots. Naresh Goyal will only be a ‘rubber stamp’ even if he has veto power. The issues raised by various agencies have been followed in letter; it is very unlikely that it will be followed in spirit.

What really raises smoke in the way the deal has been restructured is that Etihad has conceded almost everything it was asked to, without taking anything in return. Some reports had mentioned about lowering the premium at which the deal had taken place, but no such thing seems to have happened. 
 

Etihad has got what it wanted, not Jet airways, but the extra 37,000 seats. A proxy control over Jet Airways is only the sweetener. 

Though the shares of Jet Airways has shot up after clearance of the deal, it gives a good opportunity to exit, probably one of the last. Even if the cabinet clears the deal, Etihad will ensure that its interests are served before those of Jet Airways. This means that Jet Airways will barely be able to keep itself afloat, which anyways is the case. 
 

Cases have been filed in Indian courts which want the deal to be looked into, along with the seat sharing arrangements. The FIPB clearance is not the last we have heard as far as this deal is concerned.