Gulf carrier Etihad Airways’ plan to buy a 24% stake in Jet Airways % was billed as the harbinger of more such deals in the country’s troubled aviation sector. But in just over two months, much of the euphoria has frittered away.
A huge question mark now hangs over the deal after it has come under scrutiny from senior politicians such as Jaswant Singh and Subramanian Swamy. The Prime Minister’s Office (PMO), which issued a lengthy press release on Tuesday, has said there is no U-turn on the deal. But the PMO also said the deal is under examination. Earlier, the Foreign Investment Promotion Board had deferred a decision on June 14. All these developments are hardly surprising. Nor are they a bad thing. To start with, the deal created quite a flutter because of a curious coincidence.
On the very same day it was unveiled, the government decided to increase air traffic rights with Abu Dhabi by nearly threefold to 36,670 seats a week. The biggest beneficiary of the move is Etihad because it is the flagship carrier of Abu Dhabi. Jet, saddled with a debt of more than $2 billion, was desperate for a deal with Etihad.
What about Etihad? Would it buy into a debt-ridden company in a struggling aviation sector? Would asweetener in the form of more flying rights, or bilaterals (which translate into a fixed number of seats for carriers of each country) entice it? Looking at the huge premium Etihad paid for the Jet stake, a panel of MPs said the deal clearly hinged on handing more flying rights to Abu Dhabi.
CPM’s Sitaram Yechury, chairman of the standing committee on transport, tourism and culture, told this writer that the government tweaked national policy to pave way for a private deal. Soon after, the share-purchase agreement itself came under the scanner. It was clear that Etihad was calling the shots at Jet despite only a 24% stake.
Nikos Kardassis, a Jet veteran, was reportedly forced out as CEO to make way for Etihad nominee Gary Toomey. The original agreement reportedly favoured Etihad, notably handing it powers to manage Jet’s business decisions such as purchase of aircraft, expansion into new markets and the like. In other words, the Jet-Etihad deal would seem to have followed the FDI rules in letter but not in spirit.
So, the review of the Jet-Etihad marriage is heartening on many counts. Deliberations of a deal to assess its merits as well as insistence on safeguards are emblematic of a vibrant democracy. We only have to listen to tales of Indian companies investing aboard to comprehend the checks and balances foreign governments insist on. One lesser-known aspect of the aviation market in the Gulf is how governments charge royalties from airlines that fly to markets their own airlines don’t.
So, it is good to see the government lending an ear to the concerns over the Jet-Etihad deal, given that it was tone-deaf to the protestations of airlines and airports while expanding the bilaterals with Abu Dhabi. The bilaterals were pushed ostensibly to increase competition and help passengers eventually. But shouldn’t the government first prop up the domestic aviation sector: stem the panic of domestic airlines, encourage regional airline start-ups, build new airports and so on?
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