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The Union government might revoke the civil aviation ministry's memorandum of understanding (MoU) with its Abu Dhabi counterpart for offering additional airline seats under a bilateral air services arrangement.
This is likely to impact the much-awaited revision of the shareholders' agreement between India's private airline company, Jet Airways, and Abu Dhabi's flag carrier, Etihad Airways, for the latter to buy 24 per cent stake in the Naresh Goyal-promoted airline for a little over Rs 2,000 crore (around $380 million). The agreement was signed on April 24.
Although the Jet-Etihad deal has already run into several regulatory issues, Prime Minister Manmohan Singh's insistence that the bilateral arrangement with Abu Dhabi be discussed in the Cabinet has added further uncertainty to it.
"It seems Jet has kept the proposal to revise the shareholders' agreement at bay," a senior government official involved with the issue told Business Standard. "This is because it first wants to see how the new bilateral pact shapes up, as that will give an idea on (air) slots."
It was learnt the top management of Etihad had also halted the process of revising the shareholders' agreement, now that the Indian government was contemplating amendment to the bilateral pact, the official added.
While the embassy of UAE here, which does not have a commercial attache at the moment, declined to comment, Etihad's India spokesperson Reem Al Midwahi said the airline did not comment on speculation. "We are engaged in the regulatory process and it would, therefore, be inappropriate for us to comment," she said.
Several calls made to a Jet Airways spokesperson went unanswered.
Last week, after several concerns were raised by Opposition parties over the nature of the Jet-Etihad deal and the MoU signed between both countries on the slot entitlement, the Prime Minister's Office (PMO) released documents which suggested the PM had already decided to seek a Cabinet meeting to review it. However, in such cases generally, the MoU is enough. The PMO has now decided to seek necessary changes in the Cabinet note to reflect the discussions of the meeting of ministers prior to signing of the MoU on April 22.
A report of Parliament's standing committee on transport, tourism and culture, tabled last month, raised questions on the increasing of the bilateral entitlement to 36,670 seats a week from the 13,330 in the earlier MoU.
During the signing of the latest MoU between the two aviation ministries, all the Indian ministries concerned, especially external affairs and commerce & industry, were party to the talks as part of an inter-ministerial group and had supported it. "By the very virtue of us being the ministry of external affairs, it is our mandate to seek greater engagement with our partner countries," said a ministry of external affairs official on the allegations by opposition parties that it had supported the bilateral pact.
On the issue of the Jet-Etihad deal conforming to policy on foreign direct investment (FDI), Jet has been directed to re-work particularly on the clauses pertaining to "substantial ownership" and "effective control". In current FDI policy, a scheduled operator's permit can be granted only to a company where the chairman and at least two-thirds of the directors of which are Indian nationals. And, the substantial ownership and effective control of which is with Indian citizens.
The government has also directed the airline that the revised agreement should conform to Sebi regulations on issue of capital and disclosure requirements regulations, beside those on substantial acquisition of shares and takeovers. This is not the first time that investments from the UAE have courted controversy.
