With the domestic aviation sector going through a tough phase, the Jet-Etihad deal is set to bring in new synergies in the sector, which will augur well for other Indian airline companies as well, according to aviation analysts.
The Foreign Investment Promotion Board (FIPB) on Monday gave a conditional approval to the Rs 2,058-crore Jet-Etihad deal.
As part of the deal, Jet Airways will sell 24 per cent stake to the Abu Dhabi-based Etihad Airways.
Kapil Kaul, CEO, Centre for Asia Pacific Aviation (CAPA), said: “The FIPB approval was on expected lines. This is the first major foreign direct investment (FDI) deal for aviation, which is significant for the sector.”
However, the very liberal and exclusive bilaterals granted was key to the valuation of the deal, he added. “The manner of allocating bilaterals reflects poorly on how we govern India’s aviation system. We see Etihad having a major role in Jet’s operations and management, even though the shareholding agreement has been revised. Earlier in 2008-09, W.L. Ross in SpiceJet had a very significant role in SpiceJet’s strategy and future direction, even with less than 15 per cent shareholding and one board seat,” Kaul said. The deal will be positive for Jet Airways, the second biggest airline by market share after IndiGo, as this gives them capital and expertise, feel experts.
“The deal is important for Jet which is facing financial challenges. The airline has made losses for several quarters. The deal with Etihad will bring in much needed capital infusion. After the deal, Jet’s focus will increase in the domestic market,” said Amber Dubey, Partner and Head-Aerospace and Defence, KPMG. Analysts believe that the deal would also help the Indian civil aviation industry by enhancing capacity, increasing competition and bringing down airfares. “We may also see some more deals in the coming months. Concerns about “national interest”, “national security” and “unequal competition” need to be debated on a public platform,” Dubey added.
“This is a private deal between two private entities. The Government should seriously consider the Mayaram Committee’s recommendation of completely freeing the airline sector from FDI restrictions. Let there be as many foreign airlines operating in India through their 100 per cent subsidiaries or by buying into Indian carriers. India will simply gain by this. Given the challenges in the aviation sector, we expect to see some consolidation in six to 12 months’ time,” Dubey added.
Analysts feel that things are going to be tougher for Air India. The national carrier will, however, continue to have an advantage in the international sector where it operates long-haul non-stop flights as most passengers prefer direct flights, Dubey added. Experts say that new players like AirAsia India will also be watching the developments closely. Nivedita.ganguly@thehindu.co.in