Etihad Airways’ proposal to acquire a 24 per cent stake in Jet Airways appears to be taking too long. Talks of the tie-up started late last year, soon after the Government allowed foreign investments in domestic airlines, but even now there are no clear indications on when the deal will get all the clearances.

Many in the aviation sector believe that the tie-up will eventually get the Government’s nod. The deal is believed to be a showpiece of the Government’s liberalisation process and is an attempt to show that despite various domestic problems, such as the plunging rupee, rising inflation, and perceptions of a non-performing Government, UPA-II is alive and ready to do business with the rest of the world. And what better way to show this than clearing an airline’s deal, which, in just over two decades, has grown from a home-bred airline to one among the top-ranked global airline brands?

Even otherwise, Government officials point out that there is little that they can or should do to prevent the deal from going through.

“It is a deal between two private organisations. In such deals it is normal that the entity buying the unit drives the business. In such a situation how can we prevent this (Etihad eventually driving the business) from happening? The only thing we can do is put in place some checks and balances so that if our laws are violated we do not need to run after someone in Abu Dhabi but can pull up a senior official in India,” says a Government official.

And it is this checking and counter-checking that is taking time. For example, the Foreign Investment Promotion Board (FIPB) deferred a decision on the tie-up proposal at its meeting here last week. There is no clarity on when the Board will re-examine the proposal. The proposal will also need the nod of the Competition Commission of India and the Cabinet Committee on Economic Affairs before the deal is finally done.

Then the Ministry of Corporate Affairs is seeking details of the shareholder agreement while the Civil Aviation Ministry feels that the place of business could shift from India if the proposal in its current form is given the nod.

The Securities and Exchange Board of India (SEBI) too has sought details on the tie-up’s shareholder agreement and management control. It is understood that Jet Airways has submitted a detailed response to the regulator clarifying that the shareholder agreement is according to rules. It has also said that control will be in Indian hands. SEBI is also insisting on amending the change in the Articles of Association. Jet Airways listed this in the agenda for the airline’s Extraordinary General Meeting that took place last month but a decision was deferred and no new date has been provided.

SEBI’s verdict on the validity of the Jet-Etihad foreign direct investment (FDI) proposal may not be the final one if all Ministries concerned do not agree with it.

A senior Government official said that while the FIPB has decided to seek SEBI’s opinion on the issue of ownership and control of the company, its advice will be accepted only if all other Ministries, including the Department Industrial Policy & Promotion, Civil Aviation and Corporate Affairs, agree.

There are also concerns that the proposal in its current form might not adhere to some Indian laws. One rule which officials of the Ministry of Civil Aviation are concerned about is that Jet-Etihad may not give two-third representation to Indians on its board. Interestingly, the issue of the airline’s place of business shifting from India was flagged by Air India in a communication that the national carrier sent to the Ministry of Civil Aviation before Jet and Etihad decided to the equity sale.

There are fears that the place of business might shift to Abu Dhabi after the deal is finalised, which many in the Government feel is a likely development.

Of course, the two airlines are not sitting idle. In a small beginning for achieving its bigger plan once it signs the deal with Etihad, Jet Airways recently launched a flight between Kochi and Abu Dhabi with the same aircraft connecting onwards to Kuwait. The equity sale, as and when it is finalised and all Government clearances are through, will see Jet Airways using Abu Dhabi as a gateway for not only connecting to other points in Europe and the US but also for connecting passengers from 23 Indian cities to Abu Dhabi and onwards.

>ashwini.phadnis@thehindu.co.in

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