Etihad’s Jet Airways stake deal faces Indian court challenge

Etihad agreed in April to pay US$379 million for a 24 per cent stake in India's Jet Airways. Punit Paranjpe / Reuters

Etihad Airways' stake purchase deal with Jet Airways has been challenged in a petition filed to India's supreme court.

Subramanian Swamy, a senior politician in the Bharatiya Janata Party, India's main opposition party, has demanded an investigation into the circumstances of the agreement, alleging that there have been "fraudulent, deceptive and corrupt acts by the authorities representing the government of India".

The petition alleges that the deal was unfairly linked to an increase in capacity rights in a bilateral agreement between India and Abu Dhabi. The Indian government this month approved an increase in the seat capacity between Abu Dhabi and India to 50,000 a week by 2015 from 13,300 a week now.

The petition’s allegations are that “… there has been a grant of largesse of national asset in favour of a foreign airline (Etihad Airways) resulting in undue enrichment and enormous pecuniary advantage to such foreign airline at the cost and expense of the public, national and domestic airlines as well as airports.”

It claims that the bilateral agreement will result in huge losses to Indian airlines and airports, describing this as a “fraud”.

“In order to facilitate the execution of this colossal fraud on the Indian exchequer, the foreign airline (Etihad Airways) has agreed to guarantee personal loans as well as pay a premium towards its foreign investment in a domestic airlines – Jet Airways,” it claimed. “Such grant of largesse is in the form of an unprecedented increase of capacity entitlements.”

Etihad and Jet both declined to comment.

This is another potential hurdle for the Jet and Etihad deal, which has faced delays in regulatory clearances after the Abu Dhabi carrier announced in April that it planned to take a 24 per cent stake in Jet as part of a US$600 million agreement. The move was part of Etihad’s strategy to invest in foreign airlines and expand its global network.

Jet's stake sale was approved by India's foreign investment promotion board in July, but it still has to be approved by the cabinet committee on economic affairs.

Etihad at the beginning of this month said it had extended the deadline for regulatory approvals for the second time until the end of September. At that time it said the deal was imminent.

Under the deal, Etihad would become the first foreign carrier to buy a stake in an Indian airline after the government in New Delhi last September permitted investment of up to 49 per cent in the country’s carriers for the first time.

Jet Airways has been undergoing senior management changes recently which are reported to be in preparation for the deal, with KG Vishwanath, the vice president of commercial strategy and investor relations, stepping down on Sunday. Anita Goyal, who is married to Jet’s chairman Naresh Goyal, moved from an executive position to an advisory role.

Saj Ahmad, the chief analyst at StrategicAero Research, said that India was a strong growth market but added that the “regulation and legislation that dictates things certainly puts investors off”.

Criticism was also fired at Emirates Airline's presence in India in the petition, which stated that the carrier had become known as India's "national airline" because "it operates more flights and carries more passengers to and from India than Air India, our national carrier".