A Jet Airways passenger plane moves on the runway at a domestic airport in India.
A Jet Airways passenger plane taxies on the runway at a domestic airport in India.

Abu Dhabi-based Etihad Airways is to buy a 24% stake in one of India's leading airlines, Jet Airways, after the country's foreign investment regulator gave conditional approval.

The deal worth around $379m (£246.5m, €285.5m) would open the door for more foreign investments in the country's aviation sector and specially the domestic sector.

The Etihad Airways showed interest in investing after ownership restrictions were eased last year by the regulators. The deal which was announced in April was delayed due to concern over who would control the airline's operations.

If the two airlines "at any time make changes in shareholding pattern, they have to get permission from the Indian government agencies," The Press Trust of India quoted Ajit Singh, India's civil aviation minister.

Reacting to the news, shares in Jet Airways rose to as much as 7.9% in morning trading on Tuesday. The company was trading 1.75% lower at 7.51 a.m. in Bombay Stock Exchange, India.

Assessment of the Deal

The move initiates opportunities for more foreign investment as most of the Indian airlines are incurring losses due to high taxes on fuel, competition and declining passenger rates.

Furthermore, the deal also paves way for foreign investors to have a foothold in one of the world's fastest growing domestic airline markets.

The deal is expected to boost Jet's business as the airline has been struggling lately. Jet Airways is the first Indian airlines to take advantage of the new regulation.

In September last year, India said that foreign airlines could acquire up to 49% in India's aviation sector. Until then India had forbidden financially stronger foreign companies taking control of Indian carriers.

After completion of the deal, Etihad would hold two seats on the 12-member board. According to a media report, Jet's group would appoint four board members and will have the right to nominate the chairman, while Etihad would appoint the vice-chairman.

After ratification of the deal, Naresh Goyal, Jet's founder, will be holding 51% of the stakes in the airline, Etihad will have 24% and the remaining 25% will be owned by the public.

Political Pressure

The deal has been strongly criticised by the opposition party in India.

Some of them had the view that the current deal would affect the national carriers which had been facing a rough time lately.

Although country's aviation minister said that all concerns which had put the deal under scrutiny had been resolved. He said that the issues raised were "politically motivated".

The deal still needs to be approved by the capital markets regulator and the cabinet. Meanwhile, any settlement between the two airlines would be reached under Indian law according to the regulator.

India