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Deal details: Etihad may get 50% board seats, a say in deciding CEO

New Delhi: Etihad Airways may pick up 24% equity in Jet Airways for $300 million and the deal may be announced within this week.

But despite Etihad picking up a minority 24% stake in Jet initially (and scaling it up to the 49% investment cap by a foreign airline only later), industry sources said today that the management control and board representation could be 50:50 from the very beginning. Simply put, this means that instead of getting a fourth of the board seats, Etihad may get as much board representation as Jet.

The Jet Airways website says the airline has an eight member board which could mean Etihad places four of its directors on the board after the equity deal is done. This means that though on paper Jet is offloading only a minority equity stake but actually, the airline could well be jointly managed by Jet and

Etihad officials.

 Deal details: Etihad may get 50% board seats, a say in deciding CEO

Management control and board representation could be 50:50 from the very beginning.

Is this what the Indian Government had in mind when it allowed foreign carriers to pick up 49% equity in Indian airlines recently, after years of

keeping the civil aviation sector out of bounds for foreign airlines?

The sources quoted above also said though the CEO of the new airline would

have to be an Indian as per FDI norms, the choice of the CEO will not be a

decision Jet takes alone despite being the majority shareholder. "The CEO

will be jointly decided," these sources said.

They also explained that for this deal, Jet promoter Naresh Goyal will

expand the equity base of the airline, which will lead to dilution of the

80% stake Goyal's Tail Winds holds at present in Jet Airways.

"Goyal will issue fresh equity and then sell 24% to Jet, thereby diluting promoter share which is currently held through Tail Winds which is situated in the Isle of Man".

As of now, Jet's promoter holding is in violation of the FDI cap since Tail Winds is owned by an NRI, Naresh Goyal and is based outside the country. By issuing fresh equity Goyal will try to bring the NRI holding within the 49% sectoral cap.

As if these decisions from board representation to choice of CEO were not

enough indication of the kind of clout Etihad could wield in the new

alliance, the sources also indicated that Jet will retain a hub in Europe

for operations to that continent but for all practical purposes "Abu Dhabi

will become the hub for all flights on Jet network going to the Americas".

So where does it leave the assertions by the Ministry of Civil Aviation

about the Jet-Etihad combine being an Indian entity since Jet is the

predominant shareholder?

The Ministry has also indicated that it may not allow fresh code sharing between the two airlines to prevent the Jet-Etihad combine from cornering bulk of India's traffic to the USA and Europe. But eventually, if what sources say is true, Jet and Etihad would have cocked a snook at the Government's regulations by a deft management and operational structure.

Lets see how the deal pans out on paper and in reality.

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Updated Date: Dec 20, 2014 16:36:26 IST

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