The deal is the first in which a foreign carrier will invest in an Indian airline after the government relaxed regulations last year. It's terms will pave the way for future investments.
Jet surged 17.4 percent, the biggest gain since Feb. 27, to 396.35 rupees at close of trading in the city. The benchmark S&P BSE Sensex fell 0.3 percent.
“The expectation is that the government will put some conditions for the carriers and give a go-ahead,” said Arun Kejriwal, director at Kejriwal Research & Investment Services Pvt. in Mumbai. “India must take a decision on this deal as this has far-reaching implications for the airline industry.”
The Foreign Investment Promotion Board last month deferred a decision on Jet’s accord to sell its shares to Abu Dhabi-based Etihad, as authorities sought more details about the control and ownership of the Indian company after the stake sale. The deal marks the first investment by a foreign carrier in an Indian airline after the government eased aviation rules in September.
The FIPB on July 29 will consider the deal between the two airlines, it said on July 19.
Jet founder and Chairman Naresh Goyal will own 51 percent of the carrier after the stake sale, according to a company statement in April. Etihad will hold 24 percent and the remainder will be held by the public.
India’s aviation ministry is concerned that the stake sale may result in Jet, the nation’s biggest publicly-traded airline, losing some overseas flying rights, a government official familiar with the matter said yesterday. The pact may win approvals if the companies address the questions over the transfer of effective control, the official said.
Etihad agreed to reduce the number of directors it can nominate on Jet’s board to two, Press Trust of India today reported, citing a finance ministry official it didn’t identify. Jet had said that the Gulf carrier can nominate three directors to its board, according to an April 29 stock exchange filing.
Rupert Hugh-Jones, an Etihad spokesman, and Ragini Chopra, a spokeswoman for Jet, didn’t immediately respond to e-mails seeking comment.
Jet is seeking funds to add aircraft and pare debt after six years of losses caused by fuel costs and competition from discount carriers. The airline, which agreed in April to sell its stake for 20.6 billion rupees ($350 million), is counting on Etihad funds to accelerate repayment of working capital debt, K.G. Vishwanath, vice president of commercial strategy, told analysts in a conference call in May.
The carriers also need to obtain approvals from India’s stock market regulator and the home ministry to complete the share sale.
Editors: Vipin V. Nair and Subramaniam Sharma.
Photo credit: Jet Airways 737 takes off from Boeing field in Seattle. Rick Schlamp / Flickr