India's foreign investment board yesterday cleared the way for a US$600 million deal that will enable Etihad Airways to take a 24 per cent stake in Jet Airways.
The decision by the Foreign Investment Promotion Board has been much-awaited after the proposed purchase was first announced in April. But the approval has been made "with some conditions", said Arvind Mayaram, India's economic affairs secretary,without providing further details.
Jet's stake sale still has to be approved by the Cabinet Committee on Economic Affairs.
Etihad became the first foreign carrier to agree to take a stake in an Indian airline after the government in September said it would allow investment of up to 49 per cent in carriers from overseas counterparts. This comes as the country's aviation sector has been grappling with a number of challenges, including high debt levels.
"It's a win-win deal for both Jet and Etihad," said Sonam Udasi, the senior vice president at IDBI Capital Markets. He said Jet was an attractive option for foreign investment, particularly following the challenges faced by domestic rival Kingfisher Airlines, which has not flown since last year.
"Indian aviation is passing through a very tough time," Mr Udasi said. "It's quite competitive. There's a lot of state control on pricing … It's not really a free market." But he added the aviation sector had enormous potential, with a growing middle class.
The move opens up a huge market to Etihad, which also has stakes in Air Berlin, Virgin Australia, Aer Lingus and Air Seychelles as part of its expansion drive.
Saj Ahmad, the chief analyst at StrategicAero Research, said it looked like the deal would get all approvals needed, which should encourage other investors.
"Approving the Jet-Etihad deal allows investors to perhaps look at India and invest. But with so much bureaucracy and corruption, it is little wonder that India's airlines are in a mess," said Mr Ahmad.
A revised shareholder agreement will reduce Etihad's presence on Jet's board, with the Abu Dhabi company to take two seats, according to Reuters.
In April, Jet broke the news of the deal in a statement to the Bombay Stock Exchange, confirming it had sold 27.3 million new shares to Etihad at the equivalent of US$13.90 a share, subject to regulatory and shareholder approvals.
In addition to the stake, valued at $379m, Etihad will commit $220m to create and strengthen the wide-ranging partnership between the two carriers. Part of that sum is the $70m to buy Jet's three pairs of Heathrow slots.
The Tourism and Culture Authority this week announced that Indian tourists comprise the largest overseas market for Abu Dhabi.