The Foreign Investment Promotion Board (FIPB) gave its conditional approval to the Rs. 2,058 crore Jet Airways-Etihad deal on Monday clearing the decks for the biggest foreign direct investment deal in the aviation sector.
FIPB, the nodal agency that clears foreign direct investments in India, wants the share holding and the commercial cooperation agreement signed between Jet and Etihad to be governed by "Indian laws" as against "English laws".
On June 14, the FIPB had deferred a decision on approving the deal saying it needed more clarity on the ownership structure of Jet Airways as well the control that Etihad would exercise over the Indian carrier following the deal.
The deal, which now heads to the Cabinet Committee on Economic Affairs, was finally cleared after Jet and Etihad re-worked their agreement to comply with regulatory issues, as reported by HT on July 27.
If the deal is approved, it will become the first investment by a foreign airline in an Indian airline after the government eased aviation rules in September 2012. Jet shares rose 4.22% to close at Rs. 412.20 on BSE on Monday.
"Sebi has already cleared the deal. Our concerns have been resolved. Jet would still have to take approval of aviation ministry even after cabinet nod for any future changes to shareholders agreement," an aviation ministry official said.
The Jet-Etihad deal had been severely criticized by a parliamentary committee led by CPI(M) leader Sitaram Yechury as well as by several opposition leaders like Jaswant Singh of the BJP, Dinesh Trivedi of the Trinamool Congress and Subramanian Swamy of Janata Party.
The transaction had first raised eyebrows when, within hours of it being announced, India and UAE announced that they had agreed to increase the weekly flying rights between the two countries by nearly four times.
"I continue to believe that the very liberal and exclusive bilateral granted was key to the valuation and this deal," said Kapil Kaul, South Asia CEO of aviation consultancy firm Centre for Asia Pacific Aviation.
"I see Etihad having a major role in Jet's operations and management going forward even though shareholding agreement has been revised," Kaul said.
SpiceJet could be next in line to attract investment with the low-cost carrier said to in advanced negotiations for a stake sale.