On 22nd April the Cabinet Committee approved 40,000 additional bilateral seat rights per week to Abu Dhabi. As soon as the bilateral deal was signed, both Jet and Etihad entered into an agreement on 24th April. Is it a coincidence or collusion?

The deal between Naresh Goyal-led Jet Airways and Etihad Airways, the national airline of the United Arab Emirates (UAE) is becoming controversial day by day. According to new information, not only the Director General of Civil Aviation (DGCA) but the Cabinet Committee also played a significant role that benefitted both Etihad and Goyal. While defending the deal on Tuesday, Ajit Singh, minister for civil aviation, said this (Jet-Etihad) was an important deal and those opposing it are long on politics and short on facts.

In a release issued today, the Prime Minister's Office (PMO) said, "There is absolutely no disagreement within the government or between the Ministers and Prime Minister on the matter. The Prime Minister is neither washing his hands off the Bilateral Air Services Agreement nor is the Prime Minister's Office trying to do a U-turn on the issue now."

According to the note issued by the PMO on 13 June 2013 and the minutes of a meeting by P Chidambaram, the finance minister (FM), it has now come to light that all major decisions regarding enhancing the seats and Jet-Etihad deal were taken during the 48 hours between 22nd April and 24th April 2013.

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, and less than 48 hours later on the 24th of April the bilateral agreement was signed between the two governments. On the same day, 24th April, the announcement and signing of the Etihad-Jet Airways deal was made. Is this merely a coincidence or collusion that facilitated the deal?

What is shocking are the notes from the PM and the FM (copies of which are with Moneylife) contradict each other. The minutes of the meeting held on 22nd April 2013 and signed by P Chidambaram states that the bilateral was mandated under the directions of the PM. However, the note from the PMO says that the PM was concerned with the proposals being made for the bilateral deal with Abu Dhabi. The note also clearly states “the decisions were not taken under the direction of the Prime Minister”. The question then is who is telling the truth?

Earlier, an inter-ministerial group (IMG) had raised objections to the bilateral deal to be entered with Abu Dhabi. However, soon after the IMG meeting, Ajit Singh, the minister of civil aviation approached the PM urgently seeking clearance for the bilateral deal and thus override the objections raised by the IMG. Singh also emphasised that a visit of an official from his ministry was scheduled and the postponement of this (visit) would send a wrong signal. Prime Minister Manmohan Singh then directed Chidambaram to hold a meeting with Ajit Singh, Anand Sharma, minister of commerce and industries and Salman Khurshid, minister of external affairs. This meeting was held on 22 April 2013 itself.

After the meeting Chidambaram and all other three ministers met the PM. The meeting was also attended by Shivshankar Menon, National Security Advisor and Pulok Chatterji, principal secretary.

During the meeting, Chidambaram briefed the PM about the agreement (between India and Abu Dhabi) reached earlier in the day for giving a mandate to the negotiating team to allow an additional entitlement of 40,000 seats per week in a phased manner over the next few years along with the third country code sharing and domestic code sharing.

The PMO raised following issues during the meeting...

1. Although ministry of external affairs and ministry of commerce support this substantial enhancement (40,000 seats per week), the Department of Economic Affairs (DEA) had reservations in the past on the enhancement.

2. It has been reported in the media that some airlines have opposed the request for enhancement.

3. It is also likely that private airport operators would not be supportive of this enhancement as they have invested substantial amounts in the airports at Delhi, Mumbai, Bangalore and Hyderabad and would like these to develop as hubs for air traffic.

4. One of the effects of this enhancement would be that long-distance traffic from India to Europe or North America would be diverted to Abu Dhabi.

5. There is a possibility that if, as reported, an Abu Dhabi airline acquires Jet Airways, this entity would control the bulk of the seats on this route.

6. There is possibility that other countries may also make similar requests.

7. Hence a calibrated approach may be necessary.

After this, Ajit Singh assured the PM that all these concerns were considered while arriving at the enhancement. “His considered view was that these concerns would not have any adverse impact on the Indian aviation sector. The minister was of the view that the additional capacity would enhance traffic to AAI airports where AAI has invested substantial funds in capacity enhancement. While allocating additional entitlements, requests of all domestic airlines would be kept in mind. The minister stated that the air traffic market was growing rapidly and there would be a need to enhance entitlements in any case. In addition, he felt that the overall context of liberalising FDI in civil aviation needed to be kept in mind. Concerns would also be addressed by phasing out the enhancement,” the note from PMO states.

Anand Sharma also mentioned attracting large volumes of FDI and FII from Abu Dhabi to India during the meeting. The note says, “His (Sharma's) view was that Abu Dhabi currently has one of the largest Sovereign Wealth Funds in the world and it is in our interest to take steps to attract these funds to India”.

“The finance minister and external affairs minister were in agreement with and endorsed the views of the other ministers. On the basis of the above, it was agreed to give an ‘in principle’ go-ahead to the negotiating team as per the formulations (40,000 seats per week),” the note says.

Prime minister Singh, then directed that the matter may be brought to the Cabinet for a decision before operationalizing any agreements that may be arrived at by the government with the other party.

However, this decision was implemented within 48 hours and on 24th April the bilateral agreement between India and Abu Dhabi was signed. Soon after signing the bilateral, the long-pending deal between Jet and Etihad was also signed on the same day.

It is therefore obvious that the consideration to be received or 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 Jet Airways and not India as the government wants us to believe. 

Last month, the Foreign Investment Promotion Board (FIPB) deferred a decision on the Rs2,000-crore Jet-Etihad deal, the largest foreign investment in the Indian aviation sector, and sought clarity on control and ownership. As per the proposal, Jet Airways plans to sell 24% stake to Etihad for about Rs2,058 crore.

Market regulator Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI) have already sought clarity from the domestic carrier on the transaction, to ensure that Etihad’s ownership powers in Jet remain in line with its 24% stake in the company’s equity capital.

On 5 June 2013, Jet Airways chief executive Nikos Kardassis has resigned after a five-year stint with the carrier, and its chief operating officer Capt Hameed Ali was made the interim chief executive.

Reportedly, Etihad has been demanding a change in the management of Jet Airways, including removal of Goyal's wife from the board.

For the quarter ended March, Jet reported deeper losses at Rs495.53 crore against a net loss of Rs298.12 crore for the same period year-ago. Total income from operations declined to Rs3,922 crore in the March quarter from Rs4,041.61 crore in the year-ago period.

For the full fiscal 2012-13, the second largest airline improved its bottomline by narrowing the losses to Rs485.5 crore against a net loss of Rs1,236 crore in FY12.

Tomorrow... Objections of Parliament, SEBI and CCI to the Jet-Etihad deal

Read More

EXCLUSIVE: Jet-Etihad deal: What are the Parliamentary Standing Committee, FIPB, SEBI and CCI worried about?

EXCLUSIVE Jet-Etihad deal: Handing over benefits to Abu Dhabi on a platter