UAE national airline Etihad Airways’ Indian dreams hit more turbulence recently with the Indian government’s top regulatory authority expressing reservations about the proposed USD 379 million deal with Jet Airways.
The troubled Indian airline announced a few months ago that they were selling a minority stake to Etihad. The news was expected to give a much needed boost to India’s struggling aviation industry. Last year, India had relaxed stringent investment rules and allowed foreign operators to purchase up to 49 percent shares in local airlines.
The Securities and Exchange Board of India (SEBI), the Indian capital markets watchdog, is unhappy about the way the deal has been structured.
Writing to the Foreign Investment Promotion Board (FIPB), it has suggested that Jet Airways could end up being controlled by a foreign investor because of some veto powers enjoyed by it.
The announcement is likely to pose a roadblock to Etihad’s plan for meeting a July 13 deadline to seek regulatory approvals from Indian authorities. The FIPB, which will now consider the fresh concerns, is expected to discuss the Jet-Etihad deal on July 29. In case the deal is found to propose a change of management control, Indian authorities may ask Etihad to make an open offer for the acquisition. However, such an offer may be in contradiction to the Indian foreign direct policy, which calls for all control to remain in local hands.
According to market analysts, the objections raised to the deal are another example of red tape and Indian bureaucracy, which has often hindered foreign investment in the country. Such tedious delays in concluding a deal are likely to scare away other foreign investors and adversely affect the development of lucrative sectors of the economy.
Saj Ahmad, chief analyst at StrategicAero Research, believes that the Abu Dhabi government may still be keen to push ahead with the deal.
“If the deal goes ahead, it would allow better access across the GCC for travelers out of India. If the deal does not materialize, then the likes of Jet Airways will be saddled with other Indian airlines who simply cannot effectively compete with bigger Arabian airlines and they will continue to lose market share.”