Indian track record in protecting overseas investments, especially in the aviation sector, is a matter of concern for Etihad, say sources. The Gulf-based airline is currently in the process of carrying out due diligence for picking up a stake in Jet Airways.

To begin with, Etihad will have to clear Arab misgivings about India’s investment protection regime. With some past investments from the United Arab Emirates into India, including Etisalat, DP World and TAQA, running into difficulties, it is possible that Etihad wants to have a watertight case before investing in Jet Airways.

According to industry analysts, Etihad might be worried that if it were to invest in Jet and the Indian carrier ran into financial difficulties it would have repercussions for the Gulf carrier.

Kingfisher effect

These fears possibly stem from what is happening to another Indian carrier — Kingfisher Airlines. Though Kingfisher stopped operations in October last year, leasing companies are finding it difficult to take back the aircraft that they had leased out to the airline because entities like airport operators, who have also lent money to Kingfisher Airlines, want their debts to be cleared before allowing the aircraft to leave Indian shores.

Etihad is probably wary of such a situation repeating itself when it has a stake in Jet Airways. There is also speculation that the two airlines have not been able to decide on the composition of the board after the sale. With Etihad making a multi-million dollar investment it will be keen on keeping some key positions, such as Chief Commercial Officer and Chief Operating Officer, with itself. There is also the issue of the members of the board, some of whom may not appeal to the Indian Government should they happen to be of Pakistani origin though they may acquired citizenship elsewhere since then.

There is also the issue of the Indian Government controlling the import of aircraft by Indian carriers. Any airline ties up finances for an aircraft from banks and other institutions well in advance of actually importing the aircraft.

If the Government decides to delay aircraft import this could again have an adverse impact on the investment made by the foreign carrier. The Delhi-based low-cost airline, IndiGo, is already facing hiccups in importing aircraft for which it has received in-principle approval.

Poor track record

Analysts also say that India’s track record in the opening of the civil aviation sector has not been a happy one. In the 1990s, when foreign airlines were allowed to have a stake in domestic airlines, the tie-up between some Indian and foreign carriers ended messily.

While officially there is no word as to what is holding back the deal, EtIhad’s Chairman, Zayed al-Nahayan, told Reuters on February 17 that the Gulf carrier needed to revise the deal. The Sheik who is also the Managing Director of the sovereign wealth fund of Abu Dhabi Investment Authority did not specify why the deal needs to be revised. But despite these concerns officials told visiting Indian journalists that the UAE is keen to expand its economic engagement with India.

Probably realising UAE’s concerns, the two sides have agreed to set up five committees within the existing task force to look at issues of infrastructure and energy, manufacturing and technology, investment in trade, ICT and civil aviation.

Pushing for BIPA

UAE is also pushing for early conclusion of a bilateral investment promotion and protection agreement (BIPA) between the two countries.

At the just concluded first meeting of the task force on investments, India and the UAE have in principle agreed for negotiations and early conclusion of BIPA. The broad negotiations for the agreement are almost complete and it is possible that BIPA will be signed during the upcoming visit of Prime Minister Manmohan Singh to UAE in March this year.

(This article was published on February 20, 2013)
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