Why Jet-Etihad delay will not hamper FDI in other airlines

Shaheen Mansuri
Moneycontrol.com

Much before the Indian government allowed 49 percent foreign direct investment (FDI) in domestic carriers, global airlines like British Airways, Eithad and Lufthansa had evinced interest to invest in Indian market.

But finally, when FDI in aviation became a reality, global biggies switched to ‘wait-and-watch mode’ except for Abu-Dhabi’s Etihad which already had a strong connect with Jet Air and its chairman Naresh Goyal.

After months of negotiation, Etihad picked up 24 percent stake in Jet Airways in April this year, but the deal is yet to get all the regulatory approvals.

Read This: Nikos Kardassis steered Jet Air through thick and thin

Why is Jet-Etihad deal taking time?

Since the day the deal was announced, there was confusion about whether chairman Naresh Goyal’s NRI status should also be counted in the 49 percent FDI cap for investments. Now that the government has clarified that Goyal’s NRI status should not come in the way of the deal, it will now not take much time, say most analysts.

Also, this is the first FDI deal in aviation space and has its own complexities. Other foreign carriers may switch gears after they find Indian government committed to attract foreign investors, they say.

Will delay in completion of Jet-Etihad deal restrict FDI in GoAir or SpiceJet?

‘No,’ said Jitendra Bhargava, former director, Air India. “The original clause in the deal agreement gave Etihad significant powers even with a minority stake and this didn’t go well with the government. Now that Etihad has agreed to reduce seats in Jet Air’s Board along with other amendments, the government is assured that special rights will rest with our own Jet Air and not with an outsider.”

Neela Bhattacharya, Executive Vice-President (aviation) at Kale Consultants feels if any global carrier wants to buy a stake in an airline any other country, it would face resistance either politically or in the form of regulatory hurdles.

 “Jet-Etihad is one such instance where the government wants to ensure Etihad does not become more powerful than Jet post the deal. Also, if any foreign carrier comes forward to buy stake in SpiceJet or GoAir, one may not anticipate delay as there are no complications pertaining to promoter status in both these companies,” she added.

Amber Dubey, partner and aviation head at consultancy firm KPMG explained that the deal is still not closed yet because there were some grandfathering provisions which were to be kept intact without impacting new clauses pertaining to the deal. “Other Indian carriers do not have intricate ownership like Jet,” he said.

shaheen.mansuri@network18online.com