We cannot allow further deterioration of Indian aviation industry, says Dr Swamy
Dr Subramanian Swamy who launched the book— 'The Descent of Air India' authored by Jitender Bhargava, discusses the turmoil in the Indian aviation industry while Mr Bhargava talks about all that went wrong with the national carrier
At an exclusive event, Dr Subramanian Swamy, former minister of commerce and law launched the book—The Descent of Air India authored by Jitender Bhargava, a former executive director of Air India. Having spent more than two decades with Air India, Mr Bhargava knows the issues and problems of the airline and the aviation industry better than most. He, along with Dr Swamy, who in the past has raised questions over the valuation of Jet Airways by Etihad, examines the scenario of the Indian aviation industry and the way forward.
Dr Swamy, who spoke at Moneylife Foundation’s second anniversary event on the 2G scam and its implications, spoke on the "Turbulence in the Indian Aviation Industry". A few months back, Dr Swamy raised several questions on the ownership and effective control of Jet Airways, post its deal with Abu Dhabi-based Etihad Airlines and on the security concerns related with the deal. In a letter sent to Prime Minister Manmohan Singh, the former minister of commerce and law had a request to adequately scrutinize the proposal between Jet and Etihad before granting the approval.
Bilateral agreements and the Jet-Etihad deal
The deal between Naresh Goyal-led Jet Airways and Etihad Airways, the national airline of the United Arab Emirates (UAE), and the signing of the bilateral between India and Abu Dhabi comprises chain of events taking place one after another. The flow of events makes one wonder whether these incidents were mere coincidence or part of collusion, said Mr Swamy.
Dr Swamy mentioned that the deal was against public interest as there has been squandering of air space. He claimed that the deal was cleared against the advice of the Parliament Select Committee and other advisory bodies. Dr Swamy also said that even the CAG has found that there has been reckless allocation of air space to foreign airlines.
Dr Swamy has consistently been ahead of his time with his views and unafraid to express them lashed out on the sanction of the Jet-Etihad deal. He said, "All scrutiny and investigation in the past have for one vested reason or another, been suppressed and never been acted upon putting Indian security gravely at risk. The allegations of serious underworld connections from the UAE continue to haunt Jet's ownership and need to be pre-examined by the Intelligence Bureau (IB), Department of Revenue Intelligence (DRI) and other Intelligence services."
Not much is known as to what either happened or is happening within the regulatory bodies responsible for clearing this particular deal. The deal was finalised only after receiving appropriate ministerial push. It all started on 14 September 2012 with the Cabinet Committee on Economic Affairs (CCEA) approving the proposal from the Department of Industrial Policy and Promotion (DIPP) to permit foreign airlines to invest up to 49% in scheduled and non-scheduled air transport services in India. In January 2013, officials from both Jet and Etihad met Ajit Singh, minister for civil aviation and Anand Sharma, minister for commerce and industries. After the meeting, Singh confirmed that both the carriers were negotiating a stake purchase deal.
The 48-hours between 22nd and 24 April 2013 were most crucial in finalising the Jet-Etihad deal. On 22nd April “under the direction of the Prime Minister” the Cabinet Committee approved the signing of the grant of 40,000 additional bilateral seat rights per week to Abu Dhabi. Ajit Singh convinced PM Manmohan Singh to urgently clear the bilateral deal between India and Abu Dhabi. Prime Minister Singh then directed finance minister P Chidambaram to hold a meeting with Ajit Singh, Anand Sharma, and Salman Khurshid, minister of external affairs.
Immediately after this meeting, Chidambaram along with the other three ministers and Shivshankar Menon, National Security Advisor and Pulok Chatterji, principal secretary, met the PM. This time, the PM raised some issues about the bilateral. However, Ajit Singh and other ministers assured the PM that all these concerns were considered while arriving at the enhancement. Immediately after signing the bilateral (thus granting 40,000 additional bilateral seat rights per week to Abu Dhabi), Etihad and Jet finalised their stake purchase deal. As per the proposal, Jet Airways would sell 24% stake to Etihad for about Rs2,058 crore.
The prime minister, an inter-ministerial group (IMG), a Parliamentary Committee, the capital market regulator and last but not the least, the competition watchdog have expressed reservations about both the deal as well as the substantial seat enhancement. PM Manmohan Singh expressed reservations about the seat enhancement to 40,000 per week and about Etihad controlling the bulk of seats on the India-Abu Dhabi route. The Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI) have already sought clarity from the domestic carrier about the transaction.
It is therefore, obvious that the consideration to be received or already received by Jet Airways was clearly linked and co-related to the value of the bilateral that Abu Dhabi was receiving along with its investment in carrier. The sole beneficiary of the largesse of this bilateral deal was Naresh Goyal and not India as the government wants us to believe.
Pending clearance before CCI, the issue is the acquisition of 24% stake in Jet Airways by Etihad Airlines. KK Sharma, former director general of the CCI asks if CCI is totally helpless to clear the deal even if it is anti-competitive, if 210 days have passed from the date of filing of the details of the acquisition before the CCI; or does it have some other options before it? It is not clear as to why despite a clear 30 days from the date of filing of this merger review, no public notice was seen in newspapers. It is possible that this did not happen because of heavy to-and-fro traffic of communications between the CCI and the parties to combination. It is not sure as to what is going on inside the competition agency. However, in view of the position of the law and implementing regulations and the track record of the CCI so far, one can rest assured that the law and regulations are taking their correct course. However, there is a possibility, howsoever remote, that the deadline of 210 days may be projected to look like a great pressure point by the parties to the combination before the competition agency. If they succeed in convincing the CCI to clear the deal under pressure of 210 days without the deal being known to public, that would be a very dangerous precedent. Although such a possibility looks very unlikely even if it is for the sake of argument, such a possibility can happen.
Read more about the Jet-Ethihad deal:
Two other deals that were highlighted by Dr Swamy were those of the Tata group. AirAsia India, a low-cost airline, in partnership with Malaysia's AirAsia Bhd and Delhi-based Telestra Tradeplace, was announced in February. Tata-SIA Airlines, is a full-service carrier for which the Tatas teamed up with Singapore Airlines in September. Dr Swamy, has challenged the deal in the Supreme Court. Dr Swamy said he has sought cancellation of Foreign Investment Promotional Board (FIPB) clearance to AirAsia.
Dr Swamy said that the deal is fraught with illegalities. He said that the commerce ministries put huge pressure on the civil aviation to allowing foreign direct investment (FDI) in new joint ventures and not only in existing airlines. Dr Swamy pointed out that the FDI rules permit foreign investment in existing airlines, but in the case of AirAsia India there is none. Neither Tatas nor Telestra Tradeplace own or run an existing airline in India. Tata Sons has a 30% stake in Air Asia India, with Arun Bhatia of Telestra Tradeplace owning 21%. Rest 49% is with AirAsia.
Air India’s descent
On the decline of Air India, Dr Swamy highlighted a few reasons: harmful bilateral agreements, all profitable routes of the airlines were shutdown and made available to other airlines. He also mentioned that the airline bought aeroplanes that were probably overpriced and recently they sold these brand new planes as junk to Etihad, at one-third of the buying price.
Earlier in the session, Mr Bhargava spoke to the audience on what motivated him to write the book. “It was once an iconic brand and today it is grasping for breath,” lamented Mr Bhargava. He spoke about his book, which chronicles the decline of Air India from the iconic status it once commanded, to its current state. What caused the airline to lose its premier status, when and why did things go wrong, and mainly, who was responsible? In his book, Mr Bhargava detailed all the people and events that led to Air India's downfall. Mr Bhargava gives an insider's account of how an iconic brand was run to the ground by politics, apathy and corruption.
“Air India under the legendary JRD Tata was among the best airlines in the world-today it is irrelevant. Worse we aren’t even sure where Indian aviation is headed,” said Sucheta Dalal, founder, Moneylife Foundation. “The privatisation of aviation, the licensing of new entrants has been marked with the most brazen capriciousness, corruption and political interference,” she said.
Mr Bhargava, who was the executive director of the airlines till January 2010, mentioned that every decision was being taken by the government as Air India never had a culture of speaking up. Those who voiced their opinion were asked to leave. Instead of implementing decisions that should have been taken, the airline was bleeding because of decisions that should not have been taken. Impractical expansion plans and thoughtless use of the airline's resources contributed to the national carrier's collapse.
Highlighting one such instance in his book, Mr Bhargava wrote that when India won the T20 cricket world championship, Praful Patel, former aviation minister who oversaw the airlines for some seven years, awarded the entire Indian Team and their families’ free tickets on Air India for five years. The loss making airlines was also made to spend Rs3.5 crore on advertisements to celebrate the T20 win. A media house, for its annual summit, was given Rs30 lakh verbal commitment of free tickets from Air India, again by Praful Patel, in return for publicity! This oral commitment too was honoured since it was made by the minister.
Mr Bhargava brings the force of an insiders’ perspective and the eye of one who watched the decline of Air India’s fortunes almost from the very beginning. He asked some searching questions. Mr Bhargava has written the way he saw it, without embellishment.