TOPIC: MERGERS AND ACQUISITIONS IN

INDIAN CIVIL AVIATION SECTOR

SUBJECT: AIR AND SPACE LAW

FACULTY: ASST. PROF. P. JOGI NAIDU

BY: ANUSHA RAO THOTA

ROLL NUMBER: 2017099
SEMESTER – VI

1
 TABLE OF CONTENTS

ABSRACT.................................................................................................................................3
INTRODUCTION....................................................................................................................3
CIVIL AVIATION ANATOMY : A BACKGROUND........................................................4
COMPETITION ISSUES: TRANSPORTATION SECTOR..............................................5
AIRLINE MERGERS: OPEN SKIES POLICY?.................................................................7
JET-ETIHAD RULE...............................................................................................................9
FOREIGN DIRECT INVESTMENT: COMPETITION CHECKS.................................10
M&A in Aviation Sector........................................................................................................14
Top mergers in Civil aviation sector....................................................................................15
A. Jet Airways and Air Sahara.............................................................................................15
B. Air India Limited and Indian Airlines.............................................................................15
C. Kingfisher and Deccan Limited.......................................................................................16
D. Jet Airways and Etihad Airways.....................................................................................17
CONCLUSION AND RECOMMENDATIONS.................................................................18

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 ABSRACT

In the implementation sense, the mergers and acquisitions checks under Antitrust Law was
that fair competition may be "better" than in cases of anti-competitive allegations of
perceived business prejudice. A related controversial point is that each corporation is better
than the other because the latter has gained from product differentiation in various industries.
In order to incorporate the global economy outside of other political constraints, these
statements are vulnerable to material review where an enactment has been made; we find that
the planned economy should have ample purpose to use capital and to verify combinations.
However, the goal was to safeguard both the customer and the accumulation of capital in the
hands of the few. The report of our results runs approximately along the rim of the review of
the Antitrust Commission of India, which investigates the impact of mergers and acquisitions
on the free market. This article proposes that there should be 'competition' in the Indian
economy with a rider in order to discourage discriminatory activities in order to stop the
detrimental impact on competition and to encourage healthy competition of particular interest
to the civil aviation industry.

INTRODUCTION
Mergers and acquisitions ("M&A") are strategic choices made to improve the growth of a
business by expanding its development and marketing activities. In order to gain leverage,
increase the consumer base, cut competition or reach a new market or product segment, they
are used in a wide variety of ways. As it has a small number of participants, the aviation
industry is one of the least researched sectors in India. However, as the sector is growing
increasingly, information about the sector and the activities taking place in the sector is
important. The Indian aviation industry's competitive growth and capacity can be measured
by the comment of India's civil aviation minister, Mr. Praful Patel - "India's civil aviation
industry will attract investments worth more than US$150 billion in the next 10 years."
In the last 5 years, India's aviation sector and scenario has seen significant developments. The
market has not only expanded quite quickly, but the industry has seen M&A, the introduction
of a variety of major carriers with competitive pricing practises and substantial infrastructure
additions that have contributed to cut-throat competition. This paper aims to provide a brief
description of the definition of M&A and the legislation in India associated with it; it then
attempts to deal comprehensively with India's aviation industry and M&A in the aviation
3
industry. Finally, there are few major cases concerned with M&A in that field, both
domestically and abroad.

The market law itself, as one of the derivatives of the anti-trust rules, was effective in
inserting itself in the newspaper's front page headline. While anti-trust regulations are a
recent member of the Indian legal system relative to western countries that have had this
legislative structure since the 19th century, big corporations have caught the interest of
society. The basic principle of the world's economic system is that monopoly, with its
negative effect on price growth, puts high costs on every society, resulting in an unequal and
competitive climate. Monopoly dejects imagination and vitiates competitiveness.
The basic principle of the world's economic system is that monopoly, with its negative effect
on price growth, puts high costs on every society, resulting in an unequal and competitive
climate. Monopoly dejects imagination and vitiates competitiveness. The Hazari Committee
concluded that the licencing scheme has contributed to the excessive development of some of
India's major business houses. This report was followed by the Mahalanobis Committee,
which recommended that governments should focus on 'organised economy' and paved the
way for the Monopolies Inquiry Commission in 1964 and drafted the MRTP ACT in 1969 to
regulate monopolies and limit unfair trade practises.
Following globalisation, in some regions, the MRTP Act has become outdated in the light of
international economic trends pertaining to competition laws. According to the Raghavan
Commission, the scrutiny of the lack of domestic competition, along with the absolute
protection afforded to the domestic industry against imports, along with other aspects of the
licencing system discussed above, fostered a high-cost manufacturing framework that was
domestically resource-efficient and not competitive abroad.
These are the most common means of corporate consolidation or company combinations, not
only the target of Mergers and Amalgamations interests, business owners, but also corporate
consultants and tax experts.

CIVIL AVIATION ANATOMY : A

BACKGROUND 
The scope of the research project is to study the civil aviation industry in terms of the way
airlines operate around the world, the foreign and Indian liberalisation scenario and

4
regulatory structure, and to examine the development of strategic alliances in India. The aim
of the research project is to carry out a competitive evaluation of the multiple partnership
models adopted by airlines worldwide, with specific regard to strategic alliances. The key
concern in this paper is to illustrate what is the legal situation and regulatory system in India
in relation to the civil aviation industry in parlance with foreign jurisdictions? Mergers,
however, are the strongest degree of airline collaboration, contributing to the merger of two
or more carriers into one new airline. Both airlines may plan to begin merger talks, which in
turn are beneficial, leading to the merger of the two airlines to create a new larger entity. 1
Cross-border mergers are usually not permitted in the aviation industry due to regulatory and
ownership constraints, so airlines form strategic alliances instead of mergers. 

COMPETITION ISSUES: TRANSPORTATION

SECTOR 
The object of the 2002 Competition Act is to promote competition and defend markets from
anti-competitive practises. Practices of anti-competitive deals, misuse of the leading position
and mix laws, i.e. mergers and acquisitions, with a view to ensuring that competition in India
does not have an adverse impact. A combination is not invalid per se, but if the Competition
Commission of India is of the prima facie opinion that the result of such a transaction may
have a significant adverse impact on competition, the Commission may, pursuant to Section
29(1) of the Act, give a notice of shown cause to the appropriate parties to take the case for a
thorough investigation. In fact, according to statistics, India's transport sector has risen by up
to 10 percent a year, while airports have retained only 8 percent of India's GDP growth over
the last decade. The Government of India has made attempts to reform and repeal legislation
such as the 1953 Air Company Act and enacted a new law in 1994 enabling competition and
private interest in scheduled domestic air transport services, resulting in a significant rise in
traffic.2
Though India's airport charges are on average 80% higher than the international average,
India's air travel costs even more. In the civil aviation sector, most airports in India are
operated by the Government of India Airport Authority (AAI). Although the number of
airports in India is greater than that of some neighbouring countries such as China, the
majority are underused and underdeveloped. The Air Companies Act came down in 1953 and
1
Pearce Brian and Smyth Mark, “Airline Liberalisation” (2007) IATA Economics Briefing N 7.
2
Vinod Dhall, Competition Law Today: Concepts, Issues & the Law in Practise (First Published, 2007) 93.

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the aviation industry was nationalised by the Government of India. The two airlines, such as
Indian Airlines Corporation and Air India International, were formed and transferred to the
two corporate organisations from the properties of the current airlines (nine). A monopoly of
these two corporate bodies was granted to the functioning of air transport services scheduled
in existence.3
In 1994, when the Act of 1953 was abolished and the air transport monopoly ended, the
wheel spun a complete circle. The repeal has allowed the operation of scheduled air transport
services by private operators. The government owned Indian Airlines and, through the
provision of exclusive packages and dynamic fares, private operators such as Jet Airways and
Air Sahara offered domestic services. No frills airlines launched their operations with a low
cost Air Deccan. Air India was also transporting passengers from subways and international
airlines. Indian Airlines has also flown to a select range of foreign destinations in South Asia
and the Gulf. The Naresh Chandra Civil Aviation Committee suggested that the AAI be
unbundled along with the corporatization of airport management. The committee also
recommended that each of the main airports should be operated by an individual private
company and the smaller ones should be managed by regional-based corporations. 
The AAI needs to keep a watch on rates as an independent authority, as airport services are
typically a monopoly. For these purposes, the Cabinet Infrastructure Committee agreed to set
up a separate civil aviation industry authority for commercial operations, landings, tariffs,
freight and consumer charges, which would be distinct from those of the Director-General of
Civil Aviation. Despite a range of measures initiated by the Government with different
proposals, one of them relates to the level playing field of state-owned carriers. Civil aviation
is a market in which the competitiveness of state-owned airlines has been impacted by
government interference and their failure to negotiate successfully with private operators. As
these regions are weak, the civil aviation policy concerns scheduled carriers to operate at
least 10 percent of their potential on trunk routes in the north-eastern market, Jammu &
Kashmir, Andaman, and Lakshadweep. Due to this scheme, Indian Airlines had to incur extra
annual losses of 62 crores. With the opening of the airspace, the public sector airlines need to
be granted total control so that they can take on the market. A top manager of public sector
airlines reports that there is no lack of proposals to plan a course of action, but at any point it
needs government approval. Airports such as Delhi and Mumbai have a full terminal for the
state-owned airlines, while the private sector is all crowded together, considering the fact that

3
T. Ramappa, Competition Law in India: Policy, Issues and Developments (Second Impression, Oxford
University Press 2011) 183.

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Jet Airways alone has a higher market share. 6The two airlines, such as Jet Airways and Air
Sahara, decided to participate in the international field, which was the state-owned airlines'
exclusive jurisdiction.4  

AIRLINE MERGERS: OPEN SKIES POLICY?

The first big step in the process of restricting or removing traditional cost and service control
of commercial aviation in America was the deregulation of commercial airline service. 5 The
most critical element in the current activity of the air travel industry is that airlines have a
broad latitude to fix fares over a defined distance. In order to win the sector, they will do
something. Policymakers shall review the hypothesis as to whether the market is contestable,
which is essential for the entry and exit costs. Mergers have taken place to widen the
operating markets. The restoration of any greater standardisation of airline prices and
services, however, is likely to promote both network rivalry and eliminate obstacles to new
entrants in the balance, as well as to make it possible for smaller airlines to establish their
own networks.6 The goal of corporate consolidation and finding many kinds of combinations
within aviation firms is to gain certainty.

The aim of competition law is to ensure that the system of competition is not compromised
by the individuals or undertakings who gain this autonomy by mergers and acquisitions. For
combination, the Act uses a hybrid term to include mergers, purchases of shares, properties,
acquisitions of ownership of an enterprise. Under Chapter II, Section 23 of the MRTP Act of
1969 deals with the accumulation of economic control for the supervision of mergers to be
reviewed by the central government.7 Under Sections 108 A to H, the purchase of shares in
the Companies Act of 1956 deals with limits on purchases, sale of shares, and approval by the
central government for the percentage of the transfer of shares. The SEBI (Substantial Sale of
Shares & Takeovers) Regulations, 1997 amended until 3 January 2005, states that, in order to
ensure fairness and to safeguard the shareholders, no acquisition for a plan of acquisition or
takeover protected by those regulations has the impact of the proposal on competition in the

4
Pradeep S. Mehta, Towards a Functional Competition Policy for India: An Overview (New Delhi, Academic
Foundation) 199
5
Rosa Greaves, Competition Law (Dartmonth Publishing Co. 2003) 219.
6
P.C. Carstensen & S.B. Farmer, Competition Policy & Merger Analysis in Deregulated and Newly
Competitive Industries (Edward Elgar Publishing Limited 2008) 100.
7
Kingfisher Airlines Ltd. & Ors. v. Competition Commission of India & Others [2011] 100 CLA 190 (Bom.)

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market of the undertakings involved in the deal. In the case of Swedish Match v. SEBI.10.10,
the extent of Rule 10, 11, 12 has been detailed.8

In the case of mergers, Sections 390 to 396 A of the old Companies Act and Sections 230 to
234 of the Companies Act, 2013, Sections 23 & 24 of the MRTP Act, 1969, Section 5(c)
outlines the mixture modes that can be added. The Companies Act 1956 defines the
agreement between corporations or representatives. It is an expensive means of accessing a
new activity, a new market, the ability to use other company's money, the rationalisation of
activities, the tax savings on the transferor company's losses, the tax savings on the existing
company's income, the stamp duty benefits, where tax avoidance is allowed but not tax
evasion.9
Under Section 31 of the Competition Act, the Competition Commission of India can place
orders for a combination. The Clayton Act under Section 7 states a very limited topic for a
comparative feature of the USA by calling it as any line of trade. Law EC No. 139/2004 of
the EC Merger Council of 20 January 2004 allows for the regulation of concentrations
between undertakings. The U.K. Enterprise Act, 2002 The same issue is referred to in
Sections 40 to 45.10 Section 6 of the Competition Act provides that the provisions on
variations of adverse consequences on the competition market in India are unconstitutional. 11
The rules relating to the combination are also provided for in Sections 5, 6, 20, 29, 30, 31,
43A & 44 of that Act, 2002 read with the Regulations of the Competition Commission of
India (Procedure relating to the company activity relating to combinations), 2011. The
definition of 'combination' is given in Section 5 of the Competition Act, 2002. Acquisition is
also specified in Section 2 (a) of the Companies Act, 1956.12 

In the case of Deutsche Telekom, Cargill Inc. v. Monfort of Colorado,14 Inc., the acquisition
management test, such as the assessment of obstacles to entry, market share, elimination of
successful rivals, ability to maximise revenues, countervailing strength, and shared control of
the shareholding and consolidation arrangement, are the triggers of mergers and corporate
restructuring. 13

8
2004 (122) Comp. Cas. 83 (SC)
9
Hindustan Lever Employees Union v. Hindustan Lever Ltd. (1995) 83 Comp. Cas. 30 (SC).
10
Dorothy Livingston, Craig Pommey & Charles Latham, Competition Law Sources (FT Law & Tax 1995) 393.
11
Northern Securities Co. v. U.S.A. 193 US 197 (1904)
12
1:11-cv-01600 ESH
13
Peter Verloop & Valerie Landes, Merger Control in Europe: EU, Member States & Accession States (Fourth
ed., Kluwer Law International 2003) 397.

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 JET-ETIHAD RULE
Kuwait Airways and Gulf Air acquired a 20 percent stake each in Tail Winds Ltd. in 1993, a
corporate body known as an overseas company owned by Mr. Naresh Goyal, a non-resident
Indian, who retained all of its shares in Jet Airways. In the year 1997, the Ministry of Civil
Aviation directed Jet to obey the agreed rule that it could not keep shares in Indian airlines as
an overseas company. Mr. Goyal then acquired a 40 percent holding and founded Jet Airways
in 1992. A year later, as a private corporation, it started its commercial practises with leased
fleets of Boeing 737 aircraft. Etihad, on the other hand, started operations in 2003, operating
a fleet of 70 Airbus and Boeing aircraft in West Africa, Australia, Asia, Europe and North
America. It had 90 aircraft on order, including 20 Airbus A380s, supposedly the biggest
aircraft in the world.14

Mergers and acquisitions are the rarely used method of corporate consolidation, but it is not
easy in practise as there is always a possibility that a community of stakeholders might leave
unsatisfied. Regulatory clearance issues with anti-trust issues and rules do emerge. The
national airline of the UAE, Etihad Airways, began a conversation with Jet Airways (India)
Ltd. India changed its strategy for overseas carriers to retain as many as 49 percent of
domestic airlines in 2012 for the prospect of merger. In 2013, the Jet-Etihad Transaction was
launched by the Board of Directors of Jet Airways (India) Ltd. A planned allocation of 24
percent interest to Abu Dhabi's Etihad Airways PJSC for Rs. 2,058 crores or $379 million
was authorised. The decision was informed of the relevant applicable laws and regulations, as
well as the consent of the shareholders.

It is the first significant foreign direct investment in the civil aviation sector to date, with the
amount of Jet shares assigned to Etihad accounting for nearly 32% of Jet Airways' equity
value. They are to practise a win-win scenario for the stakeholders with the consent of the
Board. This is the deal where, since the Government of India Policy of 2012, the first Indian
carrier has taken such advantage of allowing international airlines to invest in this industry.
By means of fresh stock and the dilution of the promoter's 80% stake in Jet Airways, the
shares will go to Etihad. The merger led to further FDI in the future in the form of other
14
P.R. Sanjai, “Etihad to buy 24% in Jet for $300 mn” (Live Mint, 27 January 2013)
<http://www.livemint.com/Companies/LaJLXCDswGKMLEP5TNnUdN/Etihad-set-to-buy-24-in-Jet-Airways-
for-300-mn.html?ref=dd> accessed on 29 November 2014.

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organisational restructuring. As the promoter of the Company kept its stake via the Tail
Winds overseas corporate body for which the permission granted by the Competition
Commission of India and SEBI clearances was tuff, the secrecy behind this deal came ahead
for the creation of the shareholding pattern.15

A debate emerged on the bilateral air service agreement signed by India and Abu Dhabi
(UAE) and the second one is the issue of control that this deal may yield to a foreign airline
on an Indian carrier.  As the Company's promoter retained its interest via the overseas
corporate body of Tail Winds for which the permission given by the Indian Competition
Commission and SEBI clearances was tuff, the secrecy behind this deal came with the
formation of the shareholding pattern.17 A debate arose on the bilateral air service agreement
signed by India and Abu Dhabi (UAE) and the second is the issuance of the agreement. It
deals separately with regulations related to different areas of the civil aviation sector: it deals
with scheduled air travel services16 /domestic scheduled passenger airlines, non-scheduled air
transport services/non-scheduled airlines/chartered airlines, freight airlines (scheduled or
non-scheduled), helicopter services/sea air services and org servicing and repair services. The
March 2013 Guidelines specified that an FDI strategy covering all facilities is presented by
the civil aviation industry, which includes the airports, the scheduled and non-scheduled
domestic passenger airline sector, etc. However, the new policy as reviewed by the
government has agreed to authorise such FDI is not applicable to Air India.17

FOREIGN DIRECT INVESTMENT:

COMPETITION CHECKS
International airlines are permitted to spend up to 49% of the paid-up equity capital in the
capital of Indian corporate bodies, companies participating in a range of scheduled and non-
scheduled air travel operations for passenger services. Such investments shall be subject to
screening under the Government approval route, 49% shall replace FDI and FII investments,
investments made in line with the provisions of the SEBI (ICDR) Regulations and other
relevant rules and regulations shall be subject to security considerations prior to deployment
15
D.P. Mittal, Competition Law & Practise (Third Edition, Taxmann Publications Pvt. Ltd. 2011) 280.
16
Air transport operations undertaken between two or more places according to a published time table or with
flights so regular that they constitute a recognizably systematic series are known as scheduled air transport
services.
17
DGCA, “Guidelines for FDI in the Civil Aviation Sector” AIC 7/2008
<http://www.dgca.nic.in/aic/AIC06_2013.pdf> accessed on 30 November 2014.'

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and approval by the Ministry of Civil Aviation. Whereby companies participating in
scheduled passenger and non-scheduled passenger operators may use international airlines'
FDI services. Even in the case of cargo airlines, with government approval, FDI of up to 74
percent is permitted. Investment by non-resident Indians is permitted by an electronic route of
up to 100%.20 Helicopter services and even seaplane services require the approval of the
DGCA, whereby an FDI of up to 100% is allowed on automatic routes. 18 However, there are
guidelines that must be fulfilled by foreign investment institutions/entities/airlines for indirect
investment in compliance with the Aircraft Act, 1934 the Aircraft Rules, 1937 along with the
current Air Transport Policy and the approval of the Aircraft Policy. 

Any citizen of India or any corporation where he has registered his business in India is
allowed to operate scheduled air travel services or domestic scheduled passenger airlines; two
thirds of the directors are Indian citizens and the ownership is effectively managed by Indian
citizens. Even if the foreign nationals are the Chief Executive Officer or the Chief Financial
Officer, the Ministry of Home Affairs must conduct a safety vetting. It is important to include
detailed statistics on the shareholding ratio of every international airline. The international
corporation represented in the Scheduled Air Transport Operation or in the Domestic
Scheduled Airline could have 1/3rd of the overall Board of Directors represented.

This agency can enter into financial arrangements with a bank, including, in the case of loans,
a foreign airline. As 36,670 additional seats were shared between two markets, the Foreign
Investment Promotion Board managed the Jet-Etihad contract. The two airlines, Emirates and
Fly Dubai, have 54,200 seats a week to and from India. But only Air India, Air India Express,
Jet Airways and Indigo are in flight to the Middle East in the Indian aviation market.
Emirates itself runs 185 weekly flights connecting 10 cities in India. As soon as the 37,000
seats were allocated over three years under the deal, the merger came into doubt. In the case
of Plane, such a bilateral pinch has charged a decent premium. The result of the agreement
and the issue is tied to a change of authority, where a new plan for Board approval was
presented by both sides. The Air Services Arrangement between India and the UAE and the
$900 million contract were pursued to comply with local laws and FDI policy after it was
authorised. The shareholding arrangement, as stated by the Board, was also to be regulated by
British statute.19
18
Giorgio Monti, EC Competition Law (First Published, Cambridge University Press 2007) 245.
19
Maher M. Dabbah, EC & UK Competition Law: Commentary, Cases & Materials (First Published,
Cambridge University Press 2004) 509.

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It was only after the consent of the Government under FDI that ownership of the Indian
Company was passed to the hands of the foreign company. The transaction then had to come
before the Indian Competition Commission and the SEBI Capital Markets Regulator. Such
purchase of shares may have a negative impact on consumers and the SEBI (Substantial
Acquisition of Shares and Takeovers) Laws mandatory open bid obligations emerge in 2011,
as the acquisition entitles the acquirer to voting rights above the threshold.20 The fulfilment of
the mandates is a must as SEBI will scrutinise stake transactions that give buyer effective
seller power to decide if an open bid should be made to minority target company shareholders
on the step of impact on the acquisition of 24 percent stake in Jet by Etihad Airways as they
seemed to confer considerable management rights on Etihad.

As entered into in this agreement, the role should be played in accessing the shareholder
agreement, for around three directors will be named to determine senior management position
on the Jet board. The scope of the control was to be decided in order to verify the acquisition
of the control by the SEBI Takeover Code. The power question left open by the Supreme
Court by allowing the out-of-court arrangement between the two sides is bound by those
issues of law.21 The out-of-control question as specified by Regulation 2(e) of the Takeover
Code describes "control" as including the ability to nominate a majority of directors or to
control management by pressing directly or indirectly, including by means of shareholding or
voting agreements or in some other way, on policy decisions exercisable by individuals.
Provided that the agent or officer of the target company is not assumed to have power over
the target company purely by virtue of the fact that he occupies that role.

Consequently, whether or not the right not to vote or veto still constitutes power is the
question. Although this offer, as reviewed by SEBI, was to assess Etihad's gaining leverage
over the target firm, and Jet's 51 percent stake poses concerns under the takeover code about
veto rights. Nevertheless, no Court adjudicated those approaches but left SEBI to view them
on a case-by-case basis.22 The agreement capped 24 percent for open bid under the Takeover
Code but for successful voting rights in excess of 25 percent, which is limited to attending the
shareholder meeting and hence leads to a veto right on special resolution issues without
20
S.M. Dugar, Guide to Competition Law: Containing Commentary on Competition Act, MRTP Act and
Consumer Protection Act (Fifth ed., Taxmann Publications Pvt. Ltd. 2010) 393
21
SEBI v. Subhkam Ventures (I) Pvt. Ltd. (2012) 106 CLA 31 (SAT).
22
Anindya Upadhyay, “Jet Airways-Etihad deal to threaten Air India’s survival” (The Economic Times, 14
February 2013) <http://articles.economictimes.indiatimes.com/2013-02-14/news/37100363_1_jet-etihad-gulf-
carriers-capa- report> accessed on 2 December 2014.

12
having any special rights under the agreement. Investors may succeed in blocking the
company's big decisions, and the company may have to issue new securities, organisational
re-organizations, and amendments to the company's constitutional text. Etihad, however, has
the right to name three directors to decide senior management roles on board the Indian
airline. 
Etihad will approve important decisions and a 3/4th vote is required for the dismissal of
independent directors were the three most controversial provisions of the shareholder
agreement where the regulator was brought in.
SEBI indicated that Etihad should not have the absolute right to cancel the Jet Trade
Cooperation Agreement and that there should be no doubt as to the exclusive status of veto
powers and no retention of negative voting forces. SEBI also notified the parties to the
agreement that the right to select members of the board of directors should be proportionate
to the shareholding and that foreign investors do not possess powers such as the right to
nominate vice-presidents and the right to automatically represent the audit committee. Both
the significant provisions of the arrangement were then scanned by the regulator, which was
again presented with the Indian partner's favour.

However, as the first chairman on board, Naresh Goyal had a casting vote for Jet from
Mumbai's management; the four directors were appointed by the company's founder and two
directors were to be appointed by Etihad with 12 members of the board and 6 independent
directors. The FIPB clearance was subsequently released on 29 July 2013, specifically
relating to 9% of the shares held by Tailwinds, the holding firm of Jet Chairman Naresh
Goyal. In order to identify the question of regulation, the FIPB gave its nod after SEBI was
pleased with the two parties' shareholder agreement and even the CCI's approval. This
agreement entails a cross-border merger between the two main players in the international
aviation market, ultimately leading to the concept of "control" being clarified and updated
under the new FDI framework.

As the procedural regulation of the FDI policies also means that no one needs to incur undue
penalties, the facts and conditions of the cases obviously alter. The Cabinet Committee on
Economic Affairs (CCEA) accepted the Department of Industrial Policy and Promotion's
(DIPP) proposal to amend the concept of 'regulation' in the light of FDI policy three days
after the government approved the $379 million contract. The "control" specified by the
Cabinet on 1 August 2013 would be the "right to appoint a majority of directors or control
13
management or policy decisions, including on the basis of their shareholding or management
rights or shareholder agreements or voting agreements." This was done specifically to bring
parity with the definitions given under the SEBI and Companies Act 2013 guidelines.23
A business is said to be owned by an Indian citizen with a stake of more than 51 percent and
must nominate majority directors in the company, according to the new FDI regulation. It
includes board and strategic decisions, shareholding, interests of management, relationships
with owners and the Code of Acquisition. In order to ensure diligence under the indirect
foreign investment in sector caps, the FEMA Guidance would also have to be revised.

M&A IN AVIATION SECTOR

The aviation market is more or less saturated and a small number of players are present due
to entry barriers. Mergers and acquisitions in this field are extremely competitive and it is
important to bear in mind the following points:
A. Operational and financial synergies: the profit margins of airlines are very limited in
comparison to the massive running costs (including cost of aeroplanes, cost of purchasing
airports space, rebounding oil prices, employee cost, cost of compliance with high safety
regulations etc). Any shift in price policy will be harmful to business because the market is
competitive. Strategic partnerships between airlines as part of M&A are helpful in such
situations. The code sharing arrangement or interline agreements that allow parties to share
resources and minimise costs are an alternative to M&A.
B. Market Power Motive: As stated earlier, India's airline industry is rising at a rapid pace
and domestic demand is projected to rise five times by 2040. Increasing clients and the liberal
FDI policies of the government have made this sector profitable for foreign investment, and
M&A can be a favoured form of entry into domestic markets. To raise their market share
substantially, even domestic airlines join into M&A.

TOP MERGERS IN CIVIL AVIATION SECTOR

A. JET AIRWAYS AND AIR SAHARA

Both Jet Airways and Air Sahara were established as part of the government's Open Skies
Policy in the 1990s. By 2006, Air Sahara had encountered financial problems and shifted its

23
Guide to Competition Law in India: Based on the Competition Act, 2002 (Universal Law Publication Co.
Ltd., 2003) 16.

14
corporate model from a full-service airline (providing services for both business and
economy class) to a low-cost carrier to deal with them. The losses continued to accrue and
Air Sahara quickly found itself searching for purchasers to save itself.

The three key reasons for the acquisition of Sahara by Jet Airways were:

Synergies between foreign routes: Jet Airways operated on long-haul routes, such as the US
and Europe, and Air Sahara operated on adjacent routes, such as Sri Lanka, Nepal and
Thailand. Sahara was also granted authorization to work in the Gulf area. This would have
allowed Jet to have a larger global footprint.

Operational synergies: The merger will allow Jet access to the London (Heathrow), Delhi
and Mumbai parking lots of Air Sahara, the Sahara airport infrastructure and maintenance
facilities. Jet Airways faced a shortage of airline pilots that this purchase may have overcome.

Market share: At the time, the merger of these two airlines was the biggest in India. It was
estimated that the market strength of the combined company will be about 40 percent of the
airline market.

B. AIR INDIA LIMITED AND INDIAN AIRLINES

The government nationalised the civil aviation sector as part of the 1953 Air Company Act.
The eight domestic airlines that were then in existence were combined into Indian Airlines,
which served domestically and made Air India operational on international routes separately.
Though Air India did not face much administrative difficulties because of this government
decision, it was a mammoth challenge to combine eight different managerial and supervisory
staff into one Indian Airlines. In the 1990s, the legalisation and privatisation of state-owned
companies was declared as part of the reforms of liberalisation, privatisation and
globalisation around the world, and air travel deregulation took effect ahead of economic
liberalisation and more international investment.

Due to the serious rivalry with, and the success of, low-cost private airlines, the merger of Air
India Limited and Indian Airlines into Air India was conceptualised. Both Air India Limited
and Indian Airlines have seen a sharp drop in sales since 2004, following which the

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government officially announced the merging of these two companies into India's National
Aviation Business (NACIL). It kept the brand name, "Air India." This was achieved in order
to achieve substantial market share and increase profits. The merger did not do well,
however, which led to an unrecoverable financial crisis.
The net synergistic advantages of the transaction have been valued at Rs. 8.2 billion. It was
predicted that future recurring synergies would improve profits by Rs. 6 billion at the end of
the third year of the merger. The combined company quickly acknowledged losing revenue,
contrary to expectations. This was due to inadequate integration of human resources,
inconsistent leadership, wage discrepancies between staff members and employee discontent
that contributed to a series of strikes hindering the operations of the airline. Fuel to the
decline was introduced by the fierce rivalry created by low-cost private airlines. As stated,
between 2007 and 2012, Air India experienced losses worth Rs. 280 Billion.

C. KINGFISHER AND DECCAN LIMITED

Owned by United Breweries (Holding) Limited's Vijay Mallya, the Kingfisher Limited
luxury airline was launched in 2005. It served on regional and domestic routes. On the other
hand, Air Deccan was a low-cost, economical carrier. Both of these airlines catered to diverse
classes of society and had various styles.
The transaction was a two-step phase in which UB Group (Kingfisher's parent company) and
its nominees were assigned 26 percent of Deccan Aviation's equity shares and later purchased
20 percent more in a competitive bid. Via a reverse merger, Kingfisher became Air Deccan,
then changed its name back to Kingfisher Airlines in 2008. The fleet of Air Deccan was spun
off into a subsidiary called Kingfisher Red.
There were three main reasons:
The Synergic benefits: Both Kingfisher and Air Deccan airlines flew identical aircraft
(ATRs and Airbus A320s) unlike Jet Airways and Air Sahara merger, and were able to share
certain facilities such as engineering, logistics and ground handling.

Market Power: The merged entity's domestic passenger market share was estimated to be 33
percent .

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Expanding overseas: The 2004 National Civil Aviation Policy adopted the 5/20 provision
that made it compulsory for domestic airlines to serve for at least five years before operating
abroad and still have to deploy 20 aircraft or 20 percent of India's total capacity.

D. JET AIRWAYS AND ETIHAD AIRWAYS

Jet Airways was faced with a near-death encounter in 2013 and Etihad Airways saved them.
Etihad Airways has decided to buy a controlling stake of 24% of Jet Airways' shares. At the
time, Mr. Naresh Goyal, the company's chairman, held an 80% stake. The deal also included
the acquisition by Etihad in the Jet Airways Frequent Flyer Program, the selling and lease of
the Heathrow Airport Jet Airways slot (which was a part of the Jet- Sahara Merger). It was a
win-win for both sides because, after the collapse of JetLite, Etihad had been preparing its
expansion into India's one of the fastest growing markets for some time and Jet needed to be
rescued.
The deal between Etihad and Jet Airways was finalised right after the bilateral agreement
between the Government of India and Abu Dhabi on the use of airspace for flights and seats
was concluded. Many believed that Air India's customers flying to the Gulf would be taken
over by the agreement that accepted an incredible 36000 seats on weekly flights. The matter
was referred for review to the Ministry of Civil Aviation, the Department of Industrial Policy
and Promotion, the Economic Affairs Department and the Ministry of Corporate Affairs.
Both of them eventually accepted the contract. The Competition Commission of India and the
Stock and Exchange Board of India have both authorised the acquisition. The Foreign
Investment Promotion Board (FIPB) accepted the terms and conditions agreement that
allowed the company to receive prior government approval before amending the shareholder
agreement with Etihad and applying Indian laws in the case of arbitration between the parties.

CONCLUSION AND RECOMMENDATIONS

The inference is that such an arrangement was the first of its kind since the government lifted
the FDI civil aviation market to 49 percent and opened new doors for foreign flying
companies such as Etihad to enter into deals with numerous domestic international airlines

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founded and operating from India. Even though the transaction was under a scanner, the
requisite approvals from FIPB, SEBI, CCI, etc. were still effective. It has proven to be the
benchmark as the notification of FDI policy to amend the concept of "control" to make it
equal to that of RBI in line with FEMA guidelines that have a significant effect on India's
FDI transactions.It may also be argued that in the case of Sukham, there would have been
more clarification as to whether obtained veto rights would entail "acquisition of control" or
not, and the assistance from transactions had been prioritised by the Supreme Court.26
However, a regulator is required precisely for the transport business. The Competition
Commission of India will also play an important role in shaping thinking and can also
enforce criminal fines for violations of fair trade practises on firms. 27 Policy changes should
be expected at government level to introduce competition in the transport sector. In order to
promote the activity of major fleet operators in India, the equal playing ground between
public and private sector operators will function concurrently, allowing improvements in
legislation.

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