The government will decide whether the Abu Dhabi carrier Etihad can board Jet Airways as a minority partner, which if allowed will be the largest foreign direct investment in country’s aviation sector today.

 

If today’s Foreign Investment Promotion Board (FIPB) meeting considers the Rs 2,058-crore deal of Abu Dhabi-based Etihad picking up 24 percent stake in Jet, then Naresh Goyal can breathe easy as this will be a big relief for his debt-laden airline.

 

Following doubts over "effective control and ownership" of Jet passing over to Etihad raised by FIPB earlier and market regulator Sebi, a revised shareholders' agreement has been submitted by the airlines.

 

Etihad will now have two directors in the 12-member board, down from the original proposal to have three directors. Etihad's directors will be of "investor board" category and Jet will nominate four "promoter board" directors. The aviation ministry will check the pact between Jet and Etihad to ensure that effective control remains in India. "The place of business of an Indian company has to be in India and we have to see that. All foreigners who come to an Indian company will require security clearance. These things will apply to this deal also," said a senior aviation ministry official.

 

In a bid to allay fears of regulatory agencies that Jet will lose effective control to Etihad, the revised shareholders' agreement says that important decisions like appointing chairman and vice-chairman will be taken by the majority view in the board. And with two directors, Etihad's say in running of the airline would be closer to its stake in the company and not dominate Jet.

 

The pact says that Jet will continue to be run from India. The commercial and operations wings will remain in the country and not be shifted to Abu Dhabi, which Jet proposes to develop as a hub. Jet wants to operate flights to Abu Dhabi from 23 Indian cities and then provide connectivity to North America, Europe, Middle East and Africa from there.

 

Naresh Goyal, Jet's promoter, will remain chairman and this position will be decided by Jet in future too, under the revised shareholders' agreement. Once the deal goes through, Goyal will have 51 percent stake in Jet; Etihad 24 percent and the rest will held by others.

 

The government will also have to take a call on how to treat the investment of Goyal, a non resident Indian. His 51 percent stake and Etihad's 24 percent together breach the 49 percent FDI limit approved by the government in airlines. The aviation ministry, however, does not see this as a problem. "An NRI can have up to 74 percent stake in an Indian carrier. The cap is 49 percent for FDI by foreign airlines in Indian carrier and this is not breached in Jet-Etihad deal," said the official. The basic concern in Sebi, FIPB and other agencies was that Etihad was getting a disproportionately high say in running of Jet by just picking up a 24 percent stake in the company.

 

After FIPB, the deal will need to be cleared by the Competition Commission of India, which has sought the projected market share of Jet-Etihad on India-Abu Dhabi and beyond routes where other Indian carriers also fly.