Jet Airways (India) Ltd has sought a conditional clearance from the Foreign Investment Promotion Board (FIPB) to allow investments from Etihad Airways PJSC and promised to comply with all rules even as it has written a six-page letter to the agency, listing various changes the two companies are willing to make to meet the concerns raised by various ministries.
FIPB last month deferred a decision on Jet’s plan to sell a 24% stake to Etihad. It is expected to consider the proposal again on Monday.
“They have said they will meet all the regulations identified by Sebi (market regulator Securities and Exchange Board of India) and the aviation ministry after a clearance has been granted by FIPB,” said a government official familiar with the matter. “They seem in a hurry to get clearances. But who knows what will happen after it’s done?”
On Sunday, a person close to the development, said that the two airlines had put forth, in their letter, small changes that would address the issue of control that had been raised by several ministries and also Sebi—if Etihad is seen to have any control of Jet following the deal, then the Abu Dhabi airline has to make an open offer for the company’s shares from shareholders.
This person, who didn’t want to be identified, added that the letter also mentions that Jet Airways chairman Naresh Goyal would have a casting vote and that the Abu Dhabi airline would settle for two seats on the board (instead of the earlier three); Jet will have five seats and there will be seven independent directors.
Still, the deal, which contains many lengthy and complicated agreements, can be a challenge later, the government official said. Jet believes that once its proposal is cleared by FIPB, it will not need to keep coming back for clearances from anyone, he said, requesting anonymity.
Jet and Etihad have given a joint declaration that they will comply with all regulations, a second government official said, who also declined to be named.
India has in the past granted an exemption to Jet Airways. Its promoter Naresh Goyal till 2012 held his stake through an overseas corporate body (OCB). Goyal’s Tail Winds Ltd, registered in tax haven Isle of Man, owns 80% of Jet. The concept of OCB was abolished by the Reserve Bank of India (RBI) many years ago. Jet is in the process of changing this outdated structure as part of its agreement with Etihad.
The Jet-Etihad deal has been mired in controversies with parliamentarians and activists questioning how it was signed on 24 April, the same day the Indian government reached an air services agreement with the United Arab Emirates (UAE) that gave Abu Dhabi-based Etihad an additional 36,670 seats on weekly flights to and from India.
The grants of flying rights is seen by some people opposed to the transaction as a measure of increasing the price Etihad agreed to pay Jet.
Some airport and airline operators have also objected to the Jet-Etihad agreement on the grounds that it would undermine domestic interests, including state-owned Air India Ltd, which is being given Rs.30,000 crore in taxpayers’ money for a revival.
The Prime Minister’s Office and the aviation ministry have issued long clarifications separately on some aspects of this deal in the past one month.
There are various discrepancies in the new proposal sent to FIPB and these are being vetted, said the official cited earlier. These questions include whether Jet Aiways took permission from the aviation ministry for management changes in the airline, he said.
There have also been questions raised about how Jet agreed in its agreements to give additional cities as points where Etihad can operate when these are not even part of the agreement between India and UAE, according to the official.
“One needs to look into these issues carefully as these could also have impacted the price Jet secured,” the official said.
An analyst said the government has been caught in an uncomfortable position.
“FIPB is in a catch-22 situation,” said Shakti Lumba, an independent aviation consultant formerly with Air India and IndiGo. “Jet Airways is also seeking equitable treatment—like AirAsia India was cleared on assurances that a compliant agreement would be effected later. The joker in the pack is Subramanian Swamy’s PIL (public interest litigation) arguing that AirAsia was given preferential treatment by permitting it to not comply with guidelines at the time of FIPB approval. So FIPB is damned if it does and damned if it doesn’t.”
The $900 million Jet-Etihad deal has also been criticized by Janata Party leader Subramanian Swamy.
Swamy’s previous accusations against the government on alleged irregularities in the allotment of radio spectrum to mobile phone firms and the deal on AirAsia India have blown up into controversies that continue to embarrass the ruling United Progressive Alliance led by the Congress party.
Jet Airways declined comment on the matter.
“Since the transaction is being examined by the concerned regulatory authorities, and their consequent approvals are awaited, it would be inappropriate for Jet Airways (India) Ltd to respond,” a company spokesman said in an emailed reply.
On Friday, Swamy wrote to Prime Minister Manmohan Singh, attaching a copy of his objections sent to Sebi on the Jet-Etihad deal, which seeks to provide surrogate control over Jet Airways.
“The Jet Airways-Etihad deal for some obscure reasons was referred to, on the finance minister’s suggestion, for vetting by Sebi. It is my opinion that Sebi has a limited role to assess the multi-dimensional ramifications of the said deal,” he wrote. “I urge you once again in the national security interest to not allow the finance minister to rush through clearance to FIPB, which is scheduled to meet on 29 July.”
He demanded that the Jet-Etihad deal be put on hold and Singh’s office review the deal, “including the parallel bilateral agreement that the Government of India has reached with the Government of Abu Dhabi.”
He said it was very “curious that in the case of UAE, there are four separate bilateral agreements”, while with no other country does India have more than one bilateral agreement. “... This in itself is fishy, which requires your attention,” he wrote.
Swamy has said he will file a PIL against the Jet-Etihad deal.
He filed a similar case against the government for the AirAsia India clearance on Thursday in the Supreme Court.
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