Jet Etihad Airways’ strategic alliance troubled by newer speed bumps

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Jet Etihad deal encounters yet another problem with reports emerging about envoy intervention in the passing of the deal

etihad airways jet airways alliance
Jet-Etihad deal encounters yet another problem with reports emerging about envoy intervention in the passing of the deal

The strategic alliance between India’s leading airline operator Jet Airways and Abu Dhabi’s premier aircraft services, Etihad Airways was touted to be the revolution to spark the entire Indian aviation sector. But contrary to expectations, the deal brokered between the Middle-eastern airline operator and the Indian airline operator according the former a 24% minority ownership stake in the latter’s operations has been mired with huge snags ever since it was formally announced over a year ago.

SEE ALSO: Etihad – Jet Airways deal hits turbulence

Initially, in the few days after the deal of the Jet-Etihad strategic bond was finally agreed upon in November 2013, India’s chief financial regulator SEBI (Securities and Exchange Board of India) and fair trade monitor CCI (Competition Commission of India) raised a few issues in the deal that seemed to be incompatible with the trade and share law policies of the country.

According to SEBI and CCI:

  • While Etihad Airways’ stake in Jet Airways is limited to 24%, there seemed to be discrepancies in terms of the joint ownership powers between the two companies
  • This violated SEBI’s regulation rules which states that in case of joint control of ownership, an Open Offer needs to be made to the general public i.e. those having minority stakes of the company
  • With raising the acquiring stake in the concerned company to 25% corroborating with ‘joint ownership’ between the two companies

Accordingly, SEBI issued a show cause notice to both airline operators on the 15th February 2014 requiring clarification of these discrepancies and seeking to know why it couldn’t take action against the companies for violating India’s trade and share policy laws.

Presently, even as the situation continues to be in limbo and despite both organisations claiming to have suitably reciprocated to the aforementioned show cause notice, it has now emerged that the deal was finally pushed through (in November 2013), through the intervention of an Indian envoy deployed in Abu Dhabi whilst communicating the diplomatic unrest prevailing in Abu Dhabi regarding the Jet-Etihad strategic alliance.

Considering that if SEBI’s does ask Jet and Etihad to make an Open Offer, it would mean that Etihad Airways has to re-apply to India’s FIBP (Foreign Investment Promotion Board) to gain approval to acquire the additional shares to make up the 25% count. This would in turn also coincide with SEBI’s regulation policy that that promoter’s holding in any company should not exceed 75% as in case of an Open Offer, Etihad and Jet in totality would have 76% stake, with Jet having a majority 51% stake.

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