India's first foreign direct investment (FDI) of close to R2,060 crore or nearly $350 million in the civil aviation space is close to taking off. On Monday, the Foreign Investment Promotion Board (FIPB) allowed Jet Airways, India’s second-largest airline by market share, to sell 24% stake to the Abu Dhabi-based Etihad Airways, albeit with certain riders. As insisted on by the Securities and Exchange Board of India (Sebi), Naresh Goyal will remain executive chairman and has the right to cast the final vote on all matters.
Last September, the government had allowed foreign airlines to buy up to 49% stake in Indian carriers. Following FIPB’s approval, the Cabinet Committee on Economic Affairs will take a look at the deal. “We have approved the
Jet-Etihad deal with some conditions,” economic affairs secretary Arvind Mayaram said after a meeting of the FIPB.
The FIPB nod is subject to several conditions. To begin with, future changes in the shareholding pattern or the shareholders’ agreement must be approved by the government while the articles of association of Jet Airways will override the shareholders’ pact between Jet and Etihad. Moreover, all disputes between the shareholders of Jet Airways will be arbitrated under Indian laws; in its proposal, Jet had suggested that legal disputes be sorted out under English laws. Lastly, executive chairman Naresh Goyal will have powers to bring any matter to the board even without a three-fourth majority; the initial proposal did not allow a non-executive chairman to bring a proposal to the board without a three-fourths majority.
The shareholding pattern of Jet Airways, cleared by FIPB on Monday says 51% of the airline will be held by Naresh Goyal, a non-resident Indian (NRI), 24% by Etihad and 25% by public shareholders.
In the latest amendment to the shareholders’ agreement, Etihad has agreed to reduce the number of seats on the Jet Airways board to two from the previous three. The promoters of Jet Airways will have four members and there will be six independent members against seven proposed earlier.
The two airlines also agreed to remove the clause from the commercial co-operation agreement (CCA) which would have shifted the revenue management and network operations offices of Jet Airways to Abu Dhabi. Instead, the two airlines would open ‘centres for excellence’ in the two countries to enable employees to learn global best practices.
Etihad’s views on management appointments would be recommendatory as per the revised agreement. The Abu