New Delhi: Jet Airways (India) Ltd, which is in advanced talks with Etihad Airways PJSC to sell a 24% stake, will not cede management control to the United Arab Emirates firm, Jet Airways chairman Naresh Goyal has clarified.
Etihad, with its investment into the nation’s second-largest airline, will secure a seat on the board of Jet Airways and have a say in the induction of some key executives, subject to regulatory and security approvals, consultancy Centre for Asia Pacific Aviation said in a Thursday report.
As a result, Goyal will relinquish full control and move to a shared management structure, the 31 January report said.
“No. Don’t worry,” Goyal said on Friday after a meeting with aviation ministry officials in New Delhi when he was queried on the matter.
Goyal met ministry officials with Etihad chief executive officer James Hogan and other executives. Nikos Kardasis, chief executive officer of Jet Airways, was not present.
The stake sale seems to be a done deal, an aviation ministry official said after the Friday meeting.
“Goyal introduced Etihad as its new partner,” the official said, requesting anonymity. “They will move very fast on applying to FIPB (Foreign Investment Promotion Board) now, maybe in one week.”
The Indian government in September allowed foreign airlines to buy up to 49% stake in a domestic airline firm. Jet and Etihad has been in talks since then but a deal is yet to be announced.
Jet’s share prices has risen 80% to Rs.622.65 since 1 October, outpacing the benchmark Sensex’s 5.43% gain in that period.
The delay is likely because of accounting complexities and complying with legal and financial procedures, another ministry official said. He too declined to be named.
Goyal-owned Tailwinds Pvt. Ltd controls 80% of Jet Airways but is an overseas corporate body. Jet Airways is, therefore, already more than 49% controlled by a foreign holding company, but has been granted a special exemption by the government.
Jet Airways is working on a deal structure that will avoid all possible tax implications, according to an executive working with a consulting firm who is aware of the development.
“Goyal would transfer his shares from the overseas corporate body Tailwinds to his individual name,” he said on condition of anonymity. “There will not be any tax implications as there is no sale in this case. Earlier, OCB was owned by Goyal, now the same Goyal will own shares in his name.”
In the Friday meeting, executives of Jet Airways and Etihad wanted to know about the tax implications when the share sale takes place, a third ministry official said, who declined to be named.
“The question is how to do it. They are still exploring what is the best way. New shares may not invite taxes, in my understanding,” the official said, referring to Jet Airways.
British telecom services provider Vodafone had been slapped with an income-tax demand notice of Rs.11,200 crore by Indian authorities on its 2007 acquisition of Hong Kong-based Hutchison Whampoa’s stake in its Indian telecom business. Finance minister P. Chidambaram has said he is looking into resolving the tax problems involved in the telecom deal.
If new shares are issued to Etihad, it could dilute promoter Goyal’s stake.
“The top team from Etihad Airways was here to seek the comfort from Indian government before signing a term sheet with Jet Airways,” the third official said.
He also said there was no question of Jet Airways ceding management control to Etihad.
“Why would an airline give away 50% of the board seats for a 24% stake sale? Both airlines have not taken a final call on this. Now Etihad Airways team will go back and finalize the details,” he said.
On 1 February, Jet Airways reported a net profit of Rs.85 crore in the quarter ended December against a net loss of Rs.101.22 crore in the year-ago period. Sales rose 6.76% to Rs.4,205.77 crore.
Jet Airways director Aman Mehta had signed the financial statements on behalf of the board of directors. This was typically done by Goyal in the past. While announcing the results, the airline had said in a note to shareholders that “pursuant to the announcement of liberalized FDI (foreign direct investment) policy permitting foreign investment in Indian airline, the company is in discussion with a reputed airline for a strategic investment in the company”.
Mint could not immediately contact Mehta, who has been a director with Jet Airways since September 2004.
The third official said a deal could be announced before commerce minister Anand Sharma’s visit to Abu Dhabi later this month. Sharma last week said in a statement after meeting Goyal that he was scheduled to meet Etihad’s owners, without elaborating.