Etihad Stake Purchase of Jet Airways Approved

Tuesday, 13th August 2013 at 05:37am

The planned 24% stake purchase by Etihad Airways on Jet Airways finally gets sealed by the Indian government.

Etihad and Jet Airways have agreed in principle three months earlier for the former's purchase of a minority stake in the latter for $339 million.

The government implementing agency, Foreign Investment Promotion Board, approved the deal on Monday which allows the Abu Dhabi-based Etihad Airways to go ahead with its investment in Jet Airways. The seal of approval, however, comes with some conditions set forth by the government for both airlines to follow, this according to Secretary Arvind Mayaram of Economic Affairs.

Neither Jet nor Etihad gave comments on the recent development of the deal.

The conditions laid out with the purchase of Etihad in Jet Airways would ensure that the control of the airline will not shift to Etihad for the duration of the deal. The majority stakeholder, Naresh Goyal, should take control of the airline all throughout.

In the earlier version of the agreement between the two carriers, it contained a clause that portions of Jet's management operations will be shifted from Mumbai to Abu Dhabi. In the approved version, however, the clause was left out and supplanted with the provision that control of the airline should stay with Naresh Goyal.

Further provision also indicates that both airlines should seek approval from the same implementing agency whenever changes have to be made to their agreement in the future.

The recent purchase of Etihad in Jet Airways forms part of the country's foreign direct investment (FDI) which stood at $22.4 billion during the fiscal year ending March 31, 2013, or a decline of 38% from the previous period.

The Indian government amended its FDI policy last year following troubles in its aviation industry that forced one major airline, Kingfisher Airline, to fold up. Most of the airlines suffered huge debts and other operations-related problems in recent years.

The newly-amended policy has allowed foreign airline to own up to 49% stake in any local airlines from 24% prior to the amendment.

Aside from Etihad Airways, the resulting amendment has also attracted AirAsia Bhd. to invest in the commercial aviation industry.

With Etihad's investment in Jet Airways, the latter will be able to reduce its debts which already amount to $800 million.

Jet Airways shares closed higher by 4.2% hitting INR12.20 per share at the Bombay Stock Exchange before the announcement of the approval.

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