Jet, Etihad tweak agreement to get Sebi approval

To ensure their deal passes muster with the Securities and Exchange Board of India (Sebi), Etihad Airways and Jet Airways have agreed to give up some of the initial arrangements.

Among other things, they have dropped the requirement that Jet make Abu Dhabi in the United Arab Emirates (UAE) the exclusive hub for its flights to the Americas and Africa, to convince the market regulator the two airlines were not acting in concert  and Etihad would not have joint control over the airline.  

On Thursday, Sebi said Etihad’s acquisition of a 24 per cent stake in Jet didn’t warrant an open offer, as “effective control” remained with Indians and the Jet board of directors. Last year, Etihad bought the stake for Rs 2,057 crore ( Rs 20.57 billion).

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Etihad and Jet have diluted parts of the commercial co-operation and shareholder agreements to gain the regulator’s nod.

These amendments came after Sebi served a notice to Etihad in February.  

Though there will no impact on Jet’s plans to develop a network from Abu Dhabi, the amendment removes the restriction on Jet to route flights from Abu Dhabi.

Technically, it could look at other hubs; though for now Jet’s strategy is centred around developing routes to the US and Africa via Abu Dhabi. Jet and Etihad have a codeshare partnership and plan to feed traffic from 23 cities in India to Abu Dhabi and onward.

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Currently, Jet uses Brussels (Belgium) as a hub to fly one-stop flights to Newark in the US and Toronto in Canada.

It also flies to other cities in Europe in a codeshare partnership with the Thalys rail network between Paris (France) & Brussels and Brussels Airlines.

Jet is likely to retain the Brussels gateway to link Canada (as there is an issue concerning traffic rights between the UAE and Canada) and might route its Newark flight via Abu Dhabi.  

The two air carriers had also agreed under the commercial pact to have a route and schedule co-ordination and joint pricing, marketing, distribution & sales, among other things.

A source said the clause was rewritten to drop ‘joint’ from the agreement after the Sebi notice.

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The source added, “The changes were made to avoid an open offer scenario. Jet and Etihad can carry out these activities together but there is no binding obligation to do so now."  

According to the Sebi order, areas of co-operation listed in the commercial pact will be subject to approval by boards of both airlines in the modified arrangement.

Etihad has also given up its right to recommend candidates for senior management positions in Jet.  

The clause regarding  Jet joining Etihad’s global loyalty programme  has been modified to “without any restriction on Jet to enter into any similar global frequent flyer programmes”.

Etihad’s right to take the lead in buying aircraft and engines has been replaced with reciprocal arrangements that would be subject to approval of boards of both the airlines. 

Another change is that the  cooperative arrangements can also be extended to third-party carriers with which Jet or Etihad have similar arrangements or an equity investment, subject to the approval by their boards. Clauses related to governance procedures have also been dropped.

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Jet and Etihad did not respond to emails.  

Sebi’s Thursday order said Etihad made the changes to the commercial pact voluntarily.

“These voluntary changes have been made to ensure there is absolute certainty that effective control of Jet Airways is and continues to vest in Indian nationals and the board of Jet Airways.

These further changes/amendments reflect the commercial understanding between the parties, who will independently engage with one another in a spirit of transparency and reciprocity,” it said.  

Kapil Kaul of the Centre for Asia Pacific Aviation said, “Abu Dhabi is central to Etihad and critical to its global strategy.Etihad is driving Jet’s future strategy, which is linked to their global plans.  I do not see any impact on Jet (due to dilution of  the commercial pact). It will remain committed to strengthening the exclusive territory of Etihad.”

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Amber Dubey, partner and head (aerospace and defence) at KPMG, said removing ‘joint’ from the pact did not prevent the two carriers from having synergies in route design, procurement of goods and services, etc.

It would help both carriers reduce cost and improve bottom lines, he added.