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The Foreign Investment Promotion Board (FIPB) on Friday deferred approval to the Rs 2,060-crore Jet Airways-Etihad deal, wanting more clarity on management control following equity infusion by the Gulf airline.
The FIPB clearance is the first of the regulatory approvals the two airlines need before the actual equity infusion. In April, the two announced a strategic alliance under which Etihad would take a 24 per cent stake in Jet for about Rs 2,060 crore. The two airlines have also inked a commercial agreement to increase their marketing tie-up and technical co-operation. Jet is to also set up its hub in Abu Dhabi; however, additional flights depend on the Union cabinet clearing a revised traffic rights agreement with Abu Dhabi.
FIPB's decision to postpone a decision comes in the wake of Securities and Exchange Board of India's (Sebi) concerns on substantial management rights going to Etihad under the deal. FIPB has sought more details on "effective control" and ownership, department of economic affairs secretary Arvind Mayaram said.
Last month, Jet shareholders approved the deal and issue of preference shares to Etihad but the Jet management deferred the proposal to amend the airline's articles of association due to protests from shareholders and Sebi's concerns. Subsequently, the two airlines amended their shareholder agreement.
The modified agreement ensured Etihad would not have the unilateral right to terminate the commercial cooperation agreement and this right was to be held by both sides. Also, the agreement has been re-worked to ensure there is no ambiguity with respect to special rights and veto powers.
The Jet-Etihad deal and the grant of additional traffic rights to Abu Dhabi has come under fire. Parliament’s standing committee on aviation, chaired by Sitaram Yechury of the Communist Party of India (Marxist), has demanded the government reconsider the bilateral agreement it signed with Abu Dhabi and freeze the seat entitlement to the pre-revised level of 13,000 a week. Janata Party chief Subramanian Swamy has threatened to file a public interest suit on the issue.
Civil aviation minister Ajit Singh had earlier told journalists Sebi wanted the two airlines to rework parts of the agreement and added he did not foresee problems in securing approvals.
