Move to re-locate Jet HQ raises worries about Etihad deal

CNBC-TV18 economic policy editor Siddharth Zarabi explains that new questions have been raised over Jet Airways ' commercial pact with Etihad. Concerns have been raised regarding Jet Airways' plans to relocate operations and core functions to Abu Dhabi and the absence of Jet nominees on the Jet-Etihad board.

Also Read: Etihad raises concerns over political issues over Jet deal

The concerns have been raised regarding the amended and restated commercial cooperation agreement signed between the two parties on May 27. According to the pact, Etihad will hold a 24-percent equity stake and the entire operations will effectively be run by clutch of management committees.

At the head the management committees is the cooperation board that will supervise everything from pricing to planning routes, sales and inventory management.

While the pact on paper says that these management committees will be controlled by nominees in equal number from Jet and Etihad, experts raised concerns when it was revealed all the 19 nominees were foreign nationals representing Etihad.

Jet also withdrew a proposal to amend the articles of association to the shareholders. But the amended version was presented to government agencies. The second important aspect is regarding the location of the Jet Airways operations and business offices. According to the existing norms, a scheduled carrier in India has to maintain its primary place of business in India.

But according to the commercial agreement, there is phased, time-bound plan to effectively relocate entire Jet operations from India to Abu Dhabi at Jet Airways's expense.

So, while minority shareholders have been taken for a ride with the deal is structured to avoid an open offer, the minority shareholders and the non-promoter groups will continue to lose because the entire operation will shift to Abu Dhabi.

So, on one hand management control is being exercised through the backdoor and on the other hand, company's headquarters is being re-located to Abu Dhabi far from Indian regulation and laws.