Jet Airways-Etihad Deal Passes Latest Bureaucratic Hurdle

 - August 5, 2013, 12:10 PM
Etihad Airways chief executive James Hogan (left) and Jet Airways chairman Naresh Goyal. (Photo: Etihad Airways)

Clearance of Etihad Airways’s $380 million investment in Jet Airways by India’s Foreign Investment Promotion Board (FIPB) last week has paved the way for completion of the deal. The airlines now await approval from the Cabinet Committee on Economic Affairs (CCEA), which oversees foreign investment proposals of more than $200 million, and security clearances of foreign nationals.

Numerous caveats in the shareholder agreement now address concerns about the possibility that Etihad Airways would gain control of Jet Airways, despite the fact that the deal would give Etihad only a 24-percent stake. The restructured airline’s board would consist of 12 members, four appointed by Jet and two by Etihad (compared with the original plan for an equal number). Independents would account for the rest.

Announced three months ago, the deal promises a lifeline for Jet Airways, which carries outstanding debts of approximately $800 million. An air services agreement between the United Arab Emirates and India’s Ministry of Civil Aviation that awarded a 36,670 weekly seat entitlement, compared with the present 13,000, immediately followed. However, a raging debate continues over India’s sovereignty and apprehensions the deal could weaken the position of ailing national carrier Air India and disadvantage other Indian carriers.

Confusion reigns in a climate of murky government policy as more airlines such as budget carrier SpiceJet prepare to announce foreign investment. For example, although AirAsia India, the newest player to enter the Indian low-fare fray, received FIPB approval more than four months ago, it has yet to get its security clearance. The delay stands to push back its planned launch in December by a few months.

Rather than a system bound by numerous ministries responsible for specific clearances that come under their jurisdiction, India needs a “single-window” process, explained Amber Dubey, partner and head of aerospace and defense at global consultancy KPMG.

“Because we have so many complex rules and restrictions, precious man-hours of the government agencies are being wasted in checking whether the restrictions are being complied with,” said Dubey. “This is a private deal between two private entities…The government should seriously consider…completely freeing the airline sector from foreign direct investment restrictions.”