THE JET-ETIHAD ACQUISITION DEAL, 2013

EMERSION OF THE DEAL:

• Indian Government allowed Foreign Airlines to own up to 49% Stake in Indian Carriers in September 2012.
• On April 22, 2013 Cabinet approved 40,000 Bilateral Seat Rights per week to Abu Dhabi.
• On April 24, 2013 Etihad Airways announced to purchase 24% stake amounting to Rs. 2058 crore in Jet Airways.
• On April 24, 2013 Bilateral Agreement was signed between India and Abu Dhabi followed by Jet-Etihad Deal.

 CONCERNS RAISED BY SEBI AND DIPP:

On July 22, 2013  SEBI and DIPP raised concerns on Effective Control.

SEBI's concerns over Commercial Cooperation Agreement (CCA):

1. CCA will give Etihad Airways the upper hand in Operational Matters.
2. Etihad gets right to source candidates for Senior Management positions.
3. Plan to shift Network and Revenue Management functions and Consolidate Sales Office to Abu Dhabi.
4. Etihad would lead role in Negotiating with Suppliers.
5. All major decisions to be approved by Etihad which would give Etihad Airwyas substantial control over Jet Airways. Hence, SEBI proposed to amend Corporate Governance Code Clauses for passage of Board Resolutions by Simple Majority.
6. The nominations Committee should not have exclusive powers to recommend appointment or removal of all Independent Directors and the CEO as these powers were against the Companies Act, 1956.

DIPP's concerns over Shareholder's Agrement:

1. Effective Control and Ownership lie with Etihad and not Jet Airways.
2. If Naresh Goyal's stake is included, the 49% FDI limit is breached.
3. Under the FDI Norms, Voting and Nomination Rights should stay with Jet Airways.

Jet Airways had submitted a modified Shareholder Agreement on July 25, 2013 to address all concerns raised by various ministries and Stock Market watchdog SEBI.

On July 29, 2013 the deal was cleared with conditions that include:

1. Jet Airways will have to seek prior approval from the Government for making any changes in the Shareholder's Agreement.
2. Articles of Associationshould override Shareholders Agreement.
3. Etihad to get 2 seats on 12 member Board.
4. All Independent Directors should be Indian.
5. Jet airways will appoint 4 Directors of which 1 can be Foreigner.
6. The 9% stake owned by Tailwinds, holding company in Jet will have to be directly owned by Jet Chairman - Naresh Goyal.
7. All disputes relating to Shareholder Pact to be settled under Indian Law.
8. Any Arbitration in respect of other issues can be in London.

The deal is seen as a positive for the Aviation Sector since most of the Indian Carriers are bleeding due to high debt and surging fuel costs.