The controversial Rs 2,058-crore deal under which the Abu Dhabi-based Etihad will hold 24 percent stake in Jet Airways has got the approval of the Foreign Investment Promotion Board (FIPB) with major riders to maintain effective Indian control over the airline- just two days before the deadline."Jet management has to work as per the law of the land. They would have their headquarters in Mumbai. They would be governed by the aircraft rules," aviation minister Ajit Singh told reporters here.

 

Serious concerns had been raised regarding the effective control and ownership of Jet Airways after Etihad picks up stake in the Indian airline. Some MPs had also raised questions whether the operational base of Jet would shift to the UAE after the deal. Under the conditions set by the FIPB, Jet will have to seek prior government approval to make any changes in the share holders agreement with Etihad or any change in share-holding of the company. "We have approved (the Jet-Etihad deal) with some conditions," economic affairs secretary Arvind Mayaram said.

 

The conditions also include that all shareholder disputes and disputes under the shareholding agreement would have to be adjudicated under law as opposed to English law as was proposed in the revised shareholding agreement submitted just before the FIPB meeting. Any other arbitration can happen under English law. Besides agreeing to these changes, Jet and Etihad would have to submit new articles of association before the deal is put before finance minister P Chidambaram for approval and then to the Cabinet Committee on Economic Affairs.

 

Maintaining that the FIPB clearance would restore confidence of investors on India, the aviation minister said the issues raised by some MPs and others were "politically motivated" and all their concerns have been resolved. Etihad would now have two seats on the 12-member Jet board instead of three previously proposed. The domestic partner, Naresh Goyal, besides appointing four board members, would have the right to nominate the chairman, whereas Etihad would appoint a vice chairman.The 12-member board would have four directors from Jet, two from Etihad and six independent directors.

 

 BJP’s Nishikant Dubey said he would raise the issue in Parliament and Janata Party chief Subramanian Swamy threatened to move court if the Jet deal was not put on hold on grounds of national security. "The deal approved by the FIPB with riders is more alarming. Though it is yet to be cleared by the Cabinet, I will raise the issue in the forthcoming Monsoon session of the Parliament," Dubey said.

 

Dubey, who has written several letters to the Prime Minister as well as the chief vigilance commissioner on the issue, said the proposed deal was "against national interest". Swamy too reiterated his threat of moving court if the deal was cleared by the Cabinet Committee on Economic Affairs.  "We knew it (FIPB approval). But Sebi, CCI and Cabinet has yet to clear it. Despite all the cut and paste job (tweaking of the shareholders agreement), the illegalities continue and its fundamentals remain unchanged," he said. The Janata Party chief, who shot off another letter to the Prime Minister, claimed that the deal had "serious national security" implications. "I expect that you would put a hold on both the India-UAE bilateral and the Jet-Etihad proposed deal until a thorough independent investigation is made. But I find instead enormous and unbecoming haste in the manner in which the entire transaction has been sought to be railroaded."

 

However, major consultancy firm KPMG expressed the hope that government clearance to the deal would lead to more such deals in the coming months. Noting that the deal was "important to Jet which is facing significant financial challenges," senior KPMG official Amber Dubey said it would "also help the Indian aviation industry by enhancing capacity, increasing competition and bringing down airfares. We may also see some more deals in the coming months."

 

 

Without directly referring to the concerns being raised by the politicians, he said these "need to be debated on a public platform and not through war of words in the media." He noted that the deal was between two private parties and since "we have so many complex rules and restrictions, precious man-hours of the government agencies are being wasted in checking whether the restrictions are being complied with." "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 only gain," he added.