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Indian Aviation: Flights of Fancy
Arbitrary and discretion-based policies bedevil the aviation sector
 
The Indian civil aviation industry continues to lurch from one controversy to another, without much respite. The main reason is that India believes in governance by discretion. Every rule, and policy, remains on paper and is conveniently waived to suit specific political interests. 
 
Bharatiya Janata Party (BJP) leader Dr Subramanian Swamy has exposed this, once again, in the case of the SpiceJet deal in his explosive letter to prime minister (PM) Narendra Modi, on 6th May. He wants the PM’s office to set up a special investigation team and direct the Central Bureau of Investigation (CBI) and Serious Frauds Investigation Office (SFIO) to probe the various illegalities that he alleges. Owned by the powerful Maran brothers, SpiceJet was bailed out by its former promoter Ajay Singh who is known to be close to the BJP government. Dr Swamy alleges that Kalanithi Maran, the former owner of SpiceJet (and an accused in the Aircel-Maxis 2G scam being investigated by the CBI), “entered into an unholy agreement to transfer his shares at a secret price.”
 
Mr Maran transferred 58% of his holding to Ajay Singh at an undisclosed price which, Dr Swamy alleges, is illegal, since SpiceJet is a listed company. Further, the valuation of SpiceJet’s shares as ‘dud’ by the global investment bank, Goldman Sachs, is arbitrary and not in line with accounting practices, he says.
 

Interestingly, although SpiceJet is a listed entity, the Securities and Exchange Board of India (SEBI) did not insist on an open offer to the public and supported what Dr Swamy alleges is a ‘secret and illegal transfer of shares’ from the Maran brothers to Ajay Singh. The aviation minister also allowed the transfer at a “reportedly dud price of a listed entity by underwriting the source of the Rs1,300 crore infusion of funds” by Mr Singh. 
 
Dr Swamy says, “SpiceJet possesses fixed assets of Rs20,000 crore and a little more than 40% shares are  held by the public and public sector financial institutions.” Yet, it was exempted from making an open offer. He makes several other allegations including the source of funds of Mr Singh and links to the 2G scam-accused Shahid Balwa.  
 
But what is new about SEBI’s attitude? The United Progressive Alliance (UPA) government had converted SEBI into a powerful tool for dispensing discretionary favours or crippling punishment. Today, the market watchdog can shut down capital market-related businesses or choke their fund flow with little accountability for its actions. It can bury investigations for years, or let off the guilty by filing consent terms and a payment. The amount paid under consent orders varies widely for similar offences. Checks and balances, which are part of plea bargains, settlements, arrests and consent orders abroad (especially in the US from where we borrow most of our new regulation), are ignored in India. There are no speaking orders in consent cases, so there is no way of knowing whether the money paid is commensurate with the extent of wrongdoing. Even the first arrest ever made, under SEBI’s newly-acquired powers, did not bother to follow the due process and was thrown out. Unlike with regulators around the world, the judiciary does not oversee SEBI’s actions. 
 
It remains to be seen if Dr Swamy’s challenge to SEBI’s discretionary waiver of the SpiceJet open offer will finally shed some light on its working. And whether the PM will order an inquiry into the SpiceJet deal, or it will end up in the court like the Jet-Etihad deal. 
 
Now let’s look at what is happening with other airlines. The recovery of Kingfisher Airlines’ Rs7,000-crore debt to Indian banks is making slow progress. There is no light at the end of the tunnel on recovery of loans and taxes or paying the salaries owed to its staff. And, although we see less of Vijay Mallya strutting on the society pages, he remains a free man. Tax authorities impose harsh punitive action on lesser mortals with no political influence but Mr Mallya continues to receive benevolent treatment.
 
In the Jet-Etihad deal, Dr Swamy has alleged that bribes were paid to politicians who are connected to the 2G licence scam. According to him, Etisalat, a company of the Emir of UAE (United Arab Emirates), had partnered with Shahid Balwa of Swan Telecom, a key accused in the 2G scam. In order to compensate the Emir for the $1 billion loss he suffered when 2G licences were cancelled, he was allowed to buy a 24% ‘strategic’ stake in Jet Airways for Rs2,058 crore as compensation. This came with a bunch of generous bilateral agreements such as quadrupling its flying rights out of India at the cost of Indian carriers and development of domestic hubs. The comptroller and auditor general (CAG) of India had also alleged reckless allocation of air space to foreign airlines. 
 
The Supreme Court (SC) has not only admitted Dr Swamy’s petition but, in August 2014, asked the Central government to produce the Cabinet note on the Jet-Etihad Airways deal along with a transcript of the Niira Radia taped conversations on civil aviation and communications with the ambassador of UAE. In November 2014, Dr Swamy requested the PM to stop the Jet-Etihad deal. Nothing has happened. On the 6 May 2015, when the case came up for hearing before the SC, the government reportedly asked for an adjournment. Why is the BJP-led government not supporting a quick trial? After all, BJP was voted to power because people were fed up of the mega scams under the UPA. But those connected with the decline and mess in the aviation industry are treated with kid gloves.
 
Meanwhile, abused by successive civil aviation ministries, Air India continues to make losses and is surviving on a performance-related Rs30,000-crore bailout by the exchequer approved by the UPA government in 2012. It has a total debt of Rs40,000 crore. Two months ago, the PM sought a roadmap for its revival. What we have, instead, are media leaks about how Air India will sell tiny parcels of land to raise Rs1,200 crore. This is not going to make much of a dent; even the reported three-year plan to monetise Rs5,000 crore seems rather tiny. Why not a White Paper which has a fund-raising plan based on professional valuation and optimisation of land and property owned by the airline across India? 
 
Reports that Air India will review the purchase order of Dreamliners, or that it will purchase 50 new aircraft to upgrade its fleet over the next five years, are in the public domain as media leaks attributed to unknown sources. Why should we see driblets of information leaked to the press without accountability instead of a solid revival plan, especially when Air India’s performance is reportedly monitored on a weekly basis in line with the PM’s orders? 
 
On 28th April, a news agency reported that the Union Budget had provided only Rs2,500 crore for Air India out of its request for Rs4,277 crore. Where will the rest come from? Earlier, while the stock market was booming and oil prices declining, government officials were quite blasé about fund-raising. But markets have decisively shown their disenchantment with confused policies, slow pace of reform, frequent U-turns and the return of ‘taxtortion’. 
 
Civil aviation minister, Ashok Gajapathi Raju, recently said that a new civil aviation policy is on the anvil. This is certainly important; because faulty policies, excessive taxes and arbitrary decisions have played a role in the travails of the aviation industry. However, what is clear from the continuing scams and shady ownership issues (remember the chicken farmer and shady East-West Airlines that obtained the first aviation licences) is that discretion-based governance is really at the root of our problems. Will that be fixed by PM Narendra Modi first? 
 

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COMMENTS

captainjohann

2 years ago

A great write up. Vijay Mallayya continues to enjoy patronage from Bangalore's powerful elite. The Air India is milked basically by all MPs from wither side of spectrum by taking their families on foreign jaunts and doing layovers and upgrading seats etc. The staff know this and if only the staff in NewYork and London are transferred we can say this Civil aviation Minister is not beholden to the Flying Mafia.

20 die in Jammu road accident
Twenty people died on Monday in the Jammu region after a bus went out of control and plunged into a deep gorge, police said.
 
The accident occurred at Marothi in Udhampur district, 100 km from here.
 
"Twenty people have died. Relief and rescue operation is going on at the site of the accident. The bus was on the way to Badras when it met the accident," a senior police officer told IANS in Jammu.
 
Surinder Gupta, deputy inspector general of police (DIG) Udhampur-Doda range told IANS that he was rushing to the accident site to personally supervise the relief and rescue operation.
 

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Jayalalithaa acquitted in disproportionate assets' case
In a relief to former Tamil Nadu chief minister J. Jayalalithaa, a special bench of the Karnataka High Court on Monday acquitted her in the Rs.66.65-crore disproportionate assets' case. She was convicted and sentenced to four years' imprisonment by a lower court earlier.
 
Pronouncing the much-awaited verdict on the appeal by 67-year-old Jayalalithaa filed against the trial court judgment on September 27, 2014, Justice C.R. Kumaraswamy set aside all the charges on which she was convicted, sentenced to four years' jail term and fined Rs.100 crore. The charges were not "sustainable", the judge ruled.
 
The judge ordered the lower court to release Jayalalithaa's assets that were confiscated during the case.
 
The case dragged on for 18 years first in Tamil Nadu and later in Karnataka after the Supreme Court transferred it to Bengaluru in November 2002.
 
The judge also acquitted Jayalalithaa's three co-convicts who were sentenced for four years of jail term and fined Rs.10 crore each.
 
The three co-convicts are Sasikala Natarajan, her nephew V.N. Sudhakaran and her aunt J. Ellavarsi. Sudhakaran is also the disowned foster son of Jayalalithaa.
 
The apex court on October 17, 2014, granted an interim bail till December 18 to Jayalalithaa and the three co-convicts by suspending her sentence. Their bail was subsequently extended till May 12.
 
Jayalalithaa had also spent three weeks from September 27 to October 17 in the central jail on the city's outskirts after the high court rejected her bail petition on October 7 and till the apex court granted her interim bail on October 17.
 
Hundreds of supporters and cadres of the ruling AIADMK in Tamil Nadu greeted the verdict with loud cheers, bursting of fire crackers and dancing in Cubbon Park, a km away from the high court complex.
 
About a dozen lawyers of Jayalalithaa and the three others also distributed sweets and exchanged greetings with her supporters and her party leaders within minutes after the verdict was delivered around 11 a.m.

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