Economy & Nation   Exclusive
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? 
 
(Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected])
  • Like this story? Get our top stories by email.

    User

    COMMENTS

    captainjohann

    4 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.

    Digitisation is changing the way poor access TV, says study

    The first-of-its-kind study says that digitisation of TV signals was putting an end to free-to-air telecast regime

     

    Digitisation is changing the way the poor access TV and terrestrial broadcasting reception has almost disappeared in rural and urban India, says a study which looks at its impact on working class television viewers.
     
    The study by Delhi-based Media Foundation conveys snapshots from the ground in over four states and is based on data from some of the districts considered backward including Kalahandi and Dantewada.
     
    The first-of-its-kind study says that digitisation of TV signals was putting an end to free-to-air telecast regime.
     
    Reporting on how digitisation was impacting people at the bottom of income pyramid, the study says that new TV households in the villages now go straight to Direct to Home (DTH) operators except in Andhra Pradesh where cable covers much of the rural population.
     
    "Yet a substantial part of Prasar Bharati's annual budget allocations each year are absorbed by the salary and hardware costs of maintaining its terrestrial network of 1400 transmitters."
     
    The study says that growth of television access in rural India is riding on the digital revolution.
     
    "Post digitisation, driven by content demand, rural India has overtaken urban India in TV ownership. 2011 was the first year to record this change," it says.
     
    The study says that majority of TV households opt for paid DTH over Doordarshan's free dish because they want content choice.
     
    "In not a single state do even 50 percent of alll DTH households opt for Doordarshan's free dish - DD Direct."
     
    "The absence of popular entertainment channels as Colors and channels such as Discovery and National Geographic and private regional language channels such as OTV in Odisha or Zee Chhattisgarh or numerous private channels in Andhra Pradesh on the DD direct bouquet has led to demand for DD free dish declining between 2006-07 and 2012-13," it said.
     
    The main areas of study were Odisha, Chhattisgarh, Andhra Pradesh, Gujarat and Delhi and were supplemented with additional group interviews conducted in Bihar and Uttar Pradesh.
  • Like this story? Get our top stories by email.

    User

    Regulation of air ticket pricing will affect industry: Minister
    Responding to a calling attention motion on the issue in the Rajya Sabha, Raju said that while there were people who got air tickets at high prices, there were also those who got them at lower prices
     
    Civil Aviation Minister Ashok Gajapathi Raju on Thursday said a regulatory mechanism for air ticket pricing will have an undesirable effect on the aviation industry and pointed out that globally a cap on flight ticket prices existed nowhere.
     
    Responding to a calling attention motion on the issue in the Rajya Sabha, Raju said that while there were people who got air tickets at high prices, there were also those who got them at lower prices.
     
    "A regulatory mechanism (on air ticket pricing) will mean putting caps and floors... it will have its impact on the aviation industry... Is it desirable," the minister asked as opposition members urged the government to take action against exorbitant ticket prices charged by airlines.
     
    "How do I reason with people buying cheap cost tickets? It will push the prices 10 times for them," he said adding that all airlines have the minimum and maximum value of tickets displayed on their website.
     
    As several members, including Deputy Chairman P.J. Kurien, pointed out at the jump in prices during the festival season, the minister said: "A festival is no emergency. People know the date months in advance and can book their tickets."
     
    As opposition members protested and pressed for government action on the issue, Raju said: "I will try to see if we can find some way out."
     
  • User

    COMMENTS

    paryojan

    4 years ago





    The only industry that is reaping the financial reward with the prices of crude oil dropping dramatically is the Airline industry. But why everyday travelers are not seeing the cost benefit of lower fuel prices? Crude oil had dropped from $110 USD per barrel in June 2014 to below $60 per barrel today.I have found an interesting data about the air ticket pricing in a popular World magazine for this relevant topic : http://www.billionairesnewswire.com/lowe...



    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)