Last updated: July 29, 2013 4:32 pm

India approves Etihad’s purchase of stake in Jet Airways

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Etihad Airways has been given the go-ahead for a $380m deal to buy a 24 per cent stake in Jet Airways, in a move that is likely to test India’s openness to foreign direct investment.

The approval by India’s Foreign Investment Promotion Board came after the Abu Dhabi state carrier reportedly agreed to reduce the number of seats it would hold on the Jet board, and made other concessions, to reassure Indian regulators that control of the airline would remain with domestic shareholders.

“It has been cleared,” Ajit Singh, the civil aviation minister, told reporters after the meeting. “All our concerns about effective management, control and place of business have been resolved.”

The deal, which was initially announced in April, must still be approved by India’s cabinet committee on economic affairs and the competition commission, both of which are considered formalities.

The purchase of the Jet stake will be the first big infusion of foreign equity into the Indian aviation sector since New Delhi decided to permit international air carriers to hold stakes of up to 49 per cent of Indian airlines nearly a year ago.

“It’s very good for aviation and . . . it may restore the confidence of investors in the Indian growth story,” Mr Singh said. “It will help India in that way. We need a lot more foreign investment, especially in the infrastructure sector.”

The deal is likely to be followed by New Delhi giving the go-ahead to Air Asia, the low-cost carrier set up by Malaysian entrepreneur Tony Fernandes, to set up an airline in partnership with the Tata group.

India’s domestic airlines have struggled for years with high operating costs and heavy loses, but the local aviation market is considered to have huge growth potential, as many among the country’s increasingly affluent population take to the skies – and go abroad – for the first time.

Analysts say having a foothold in India’s domestic market through the Jet share will help Etihad funnel Indian travellers to its extensive overseas network. The deal will also provide Jet with much-needed cash to reduce some of its estimated $2.3bn in debt and help it grow.

However, the deal could still face difficulties. India’s Congress-led government has been accused of sweetening the deal for Etihad by signing a bilateral agreement with Abu Dhabi that will sharply increase the number of flights permitted between the two countries each week.

India’s opposition politicians have questioned increasing the seat quota for Abu Dhabi, and warn that the deal could damage the ailing state carrier, Air India.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE