Jet Etihad Deal Analysis Essay
Jet Etihad Deal Analysis
On April 24 Jet Airways and Etihad signed the strategic alliance. The Etihad agrees to buy a 24% stake in the Jet for about Rs 2,060 crore. It is the biggest deal in Indian aviation sector. On May 24, Jet shareholders approved the stake sale. The airline deferred its resolution to amend the company’s articles of association. However the deal is facing hurdles with share holders and even Securities and Exchange Board of India (Sebi) and Foreign Investment Promotion Board (FIPB) of India raising concerns over “substantial rights” being accorded to Etihad Airways. The FIPB has deferred granting sanction to the proposal until the issues regarding control are addressed. The Jet Airways-Etihad share holder agreement is likely to be revised again following SEBI and FIPB concerns over substantial control to the Abu Dhabi airline under the deal. The major concern of SEBI and FIPB were-
* Under the current agreement board resolutions require consent of 3/4th of members majority for decision and As per the agreement Etihad would get three board positions while Jet Airways would have four members. There will be seven independents on the board. * The agreement has unilateral right and can be terminated by Etihad any time. * The jet airways headquarters will be shifted to Abu Dhabi where it is subjected to law and control of Abu Dhabi. On May 27, the two airlines amended its shareholder agreement to address shareholder and SEBI concerns on ‘control’ and ‘ownership’. The major changes were- * Etihad will not have the unilateral right to terminate the commercial cooperation agreement and this right will now be held by both sides. * The other change pertained to constitution of the nomination committee of the board which will make key board and management appointments. The nomination committee will include one person nominated each by Jet Airways and Etihad and three other board members will be chosen through consensus. But still the Foreign Investment Promotion Board defers approval to Jet-Etihad alliance due to More changes were being proposed to address the concerns.
Impact on Economy, Stock Market and various other Areas
The favour of the bilateral pact point to the 1.8 million Indians who live and work in the UAE that, they can fly to India cheaply. Earlier they had to spend their yearly savings to make one trip back home. The latest exchange of seats with Abu Dhabi is because of Abu Dhabi has agreed to invest $50 billion in infrastructure projects in India. It will lead to growth of aviation sector and will generate employment in India. The agreement has a clause that deal can be terminated if requisite permissions are not received before July 31. However, the discussions are now on to renegotiate the terms of the deal at a price lower than that agreed upon earlier.” The two airlines are now discussing changes in the investor agreement. These include a possible revision in purchase price. Under the agreement signed by the airlines on April 24, Jet Airways had agreed to issue 24 per cent equity to Etihad by way of preference shares in a deal valued at about Rs 2,060 crore. Etihad had agreed to a pay a premium of 31 per cent on Jet’s stock price (Rs 573 at that time). The Jet stock fell four per cent from its previous close on BSE to end the day at Rs 403.45. after the FIPB decided to defer the approval of Jet-Ethiad deal. It further fell drastically and came to 369.85 till date. Impact if deal is approved by FIPB
If the deal gets green signal from the regulating authorities, their would be a positive impact on our economy. It will push the stock of all the airlines upward especially Jet airways because it will open doors for other airlines for merger with other foreign airlines and would attract FDI which in turn will lead to growth and development of our economy. It would ease the pressure of high current account deficit in long run because if more and more dollars will flow in form of FDI’s in India, than rupee will appreciate in terms of dollar.