Paving way for closure of long-pending Jet Airways,Etihad Airways deal,fair trade regulator CCI today approved the proposed acquisition of 24 per cent stake in the Naresh Goyal-led Indian carrier by Abu Dhabi-based airline.
Etihad Airways is acquiring this stake for Rs 2,058 crore in a deal that was announced in April this year,becoming the first-ever FDI (Foreign Direct Investment) in an Indian carrier by an overseas airline.
However,the deal has been stuck for months for want of various regulatory approvals. The clearance by the Competition Commission of India (CCI),whose nod is necessary for any major merger and acquisition deal involving an Indian entity,was among the last regulatory approvals for this transaction.
Among others,the deal with Jet Airways has already been cleared by capital markets regulator Sebi,Foreign Investment Promotion Board (FIPB) and Cabinet Committee of Economic Affairs (CCEA).
The deal had to be revised after Sebi raised objections over a previous structure that involved Etihad Airways possibly getting larger control over Jet Airways,which is a publicly listed company in India.
“Considering the facts on record and the details provided in the notice (under relevant section of the Competition Act)… the Commission is of the opinion that the proposed combination is not likely to have appreciable adverse effect on competition in India and therefore,the Commission hereby approves the same,” CCI said in an order.
The majority order,passed by CCI chairman Ashok Chawla and four members,said that the approval can be revoked if information provided by Jet Airways and Etihad Airways is found to be incorrect at any time.
However,one CCI member passed a minority order dissenting with the majority view and said the deal could have adverse impact on competition in international air travel market. Dissenting member Anurag Goel said he was “of the prima facie opinion that the proposed combination is likely to cause an appreciable adverse effect on competition within the market of international air passenger transportation from and to India.”
“A notice may,therefore,be issued to show cause to the parties to the combination calling upon them to respond within thirty days of the receipt of the notice,as to why investigation in respect of the proposed combination should not be conducted,” his dissent order said.
The Commission said the approval to Jet Airways and Etihad Airways is granted on the basis of “underlying competition assessment” based on information provided by the parties in their notice,which has been modified and supplemented from time to time.
“This approval should not be construed as immunity in any manner from subsequent proceedings before the Commission for violations of other provisions of the (Competition) Act. It is incumbent upon the parties to ensure that this ex-ante approval does not lead to ex-post violation of the provisions of the Act,” CCI said.
The regulator also noted that this “approval however,shall have no bearing on proceedings under Section 43A of the Act”. Under this section,CCI has powers to slap penalties for non-furnishing of information on M&A deals.
While Jet Airways and Etihad Airways were said to be in discussions for a long time,they had formally announced their proposed deal in April this year.
However,the original deal had hit several regulatory road blocks,primarily on concerns that it could lead to a foreign airline getting control over an Indian company in a sensitive sector like aviation and Jet Airways’ public shareholders were being given a raw deal.
Subsequently,the deal was restructured to address the apprehensions of various regulators and other government bodies,such as Sebi,CCI and FIPB.
After the deal,Etihad Airways would have 24 per cent stake in Jet Airways,main promoter Naresh Goyal would have 51 per cent and public shareholders would have remaining 25 per cent.
Besides,Etihad Airways’ control over board matters and other business decisions was also curtailed in revised deal.
Recently,the Home Ministry had conveyed to the Department of Economic Affairs (DEA) that it has not given security clearance to Jet Airways,Etihad Airways deal.
The Foreign Investment Promotion Board’s (FIPB) gave its consent to the proposed transaction on July 29.
Meanwhile,the two carriers have submitted before the Commission that they seek approval for Etihad Airways’ acquisition of 24 per cent equity interest in Jet Airways as well as “in relation to all the rights and benefits” which have been agreed upon in various agreements.
These pacts are amended Shareholder’s Agreement (SHA),Commercial Co-operation Agreement (CCA) and Corporate Governance Code (CGC).
Incidentally,the main order runs into only 23 pages,whereas the dissent order is 27 pages long.
The Commission noted that the deal would be beneficial to Jet Airways and strengthen its operational viability.
Jet Airways had a debt of Rs 89,994 million at end of March 2013.
“The Commission is of the view that this partnership will allow Jet to continue to compete effectively in the relevant markets in India and internationally,” the order said.
In this case,the relevant market considered by the Commission is the market for international air passengers.
Regarding the latest Bilateral Air Services Agreement (BASA) entered between India and the UAE,the Commission said the market share rise due to the revised pact is unlikely to cause exploitation of their market position.
“With very realistic assumptions regarding the distribution of increased seats to Jet Airways in addition to the increased seats to Etihad Airways (totalling 50,000 total seats per week/each way up from current 13,300,to Etihad Airways),the market shares forecast as a consequence of the revised bilateral of the combined entity increases from 17.06 to 22 per cent.
“This does not portend any possibility of market power that is likely to be exploited,” the order said.
Further,the regulator noted that the dynamic responses of other airlines as a consequence of this proposed deal which,cannot be completely evaluated ex-ante,would change the competitive landscape that is most likely to benefit the Indian aviation passenger.
Meanwhile,in its comments on the deal national carrier Air India raised two main concerns — impact of the alliance on the competitive landscape of the India-Abu Dhabi route and impact of the alliance on Indian aviation and Air India.
“These concerns have been considered and addressed in the assessment of the combination,” the order said.
Air India submitted its response on November 8 after seeking time extension twice.