Etihad makes major concessions in favour of Naresh Goyal to speed up Jet deal

NEW DELHI/MUMBAI: Abu Dhabi's Etihad has made significant concessions in favour of its Indian partner, NareshGoyal, in an effort to persuade the Indian authorities to clear its $600-million investment in Jet Airways.


Etihad has agreed to vest Goyal, the founder chairman of Jet, with the right to deliver a "casting vote on any matter", in addition to reducing its representation from three to two on the 12-member board of India's largest private airline by revenues.

ET reviewed the latest set of amendments to a slew of agreements between the two airlines that was sent to the Department of Industrial Policy and Promotion on July 25, ahead of a crucial meeting of the Foreign Investment Promotion Board (FIPB) on Monday.

The deal is likely to be approved as most of the provisions in the original agreement with which the Indian authorities, notably capital market regulator Sebi, had problems have now been suitably diluted by the two airlines in their bid to secure approval. It is not clear, though, if FIPB will take a final decision on Monday as the revised agreements were circulated to various ministries and Sebi over the weekend.

The changes in the revised agreements are substantive.

The nominations committee, which in the original agreement had the "exclusive power" to recommend the appointment and sacking of independent board members, will now only exercise powers that are "recommendatory by nature".

In the old commercial cooperation agreement, or CCA, Etihad was empowered to 'source' suitable candidates for senior management positions within Jet, which the regulators feared gave Etihad an edge despite its minority stake. It has now been diluted to allow Etihad only to recommend suitable candidates.

Etihad had also planned to co-locate in phases the network and revenue management functions to Abu Dhabi at Jet's expense. This included domestic scheduling, pricing, interline pricing, etc. The clause went against the rules governing Indian aviation. The new CCA clarifies that functions relating to network and revenue management will continue to be managed by Jet from Mumbai.

The new agreement says the intention of the two parties is to establish "centres of excellence" in both India and Abu Dhabi.

Goyal to call the shots

Further, the facilitation committees that had overriding powers will now be reined in by a new clause that says any "material recommendations" will need board approval.

The casting vote in favour of Goyal will enable the promoter to call the shots when there is a deadlock in the board. "He ( Naresh Goyal) will get his way," said Ramesh Vaidyanathan, managing director, Advaya Legal, a law firm in Mumbai. Vaidyanathan, however, felt that Etihad had agreed to concessions on crucial issues because it had too much at stake. "When the heat dies down, they may get back some of the powers," he added. The mood at Siroya Centre, the Jet headquarters in Mumbai, is upbeat as the deal appears to be nearing closure.

"The countdown has begun. Most of the ticklish issues raised by the authorities have been addressed and we hope to get a favourable response soon," said a source privy to the deal.

Neither Jet nor Etihad responded to email queries from ET.

Legal experts believe the casting vote is like an "additional privilege". "However, nothing stops the two parties from signing private agreements on how and when to use these privileges," Vaidyanathan said. Courts recognise such agreements, he added.

The many regulatory interventions from Sebi, FIPB and the ministry of civil aviation have ensured, though unwittingly, that Goyal has managed to have his cake and eat it too. Etihad has agreed to alter several important clauses in the original agreement signed on April 24, 2013, that appeared to confer upon it powers that may have triggered Sebi's takeover code.

Ajit Singh, in an interview to ET on July 3, had made it clear that the Abu Dhabi-based airline would have to concede ground if the deal had to go through: "They (Etihad) have to agree. It is not a question of choice," he declared.

The minister put the onus on Sebi for deciding on the matter. "They have to make whatever changes as Sebi stipulates," he had said. For Etihad, the writing was on the regulatory wall.