Every time Jet Airways is in trouble, the stars seem to align for Naresh Goyal. INN tracks how he thrives in the cut-throat aviation sector. The timing of Naresh Goyal’s deals has once again put the spotlight on the relationship between policy, politics and corporate deal-making. And on how simply and secretly the Jet Airways chairman’s business initiatives have been aided by the timing of policy changes and announcements. Would it be fair to say, in his case, it’s more connection, kismet than karma? What has always kept him that one crucial step ahead of his competition? Can we just credit his astute negotiating skills? How is that Goyal was able to manage bureaucracy and the political scenario at all times?
A detailed look at the deal between Jet and Abu Dhabi-based Etihad Airways suggests that deeper considerations could have been at play, including India-UAE ties, possible investment commitments from the sheikhs, the financial mess Jet was cornered into, and, of course, the nod for allowing FDI in the aviation sector.
But just as Jet and Etihad were busy sending out press releases on their deal, the government decision to raise the weekly seat capacity between India and UAE to almost four times seemed to have gotten buried in the deal headlines.
The government hiked the weekly seat quota from 13,000 to 50,000, signalling that India-Abu Dhabi promises to be one of the busiest routes. In effect, this presents the Gulf-bound market to Jet-Etihad on a platter. It was widely reported that Goyal had met civil aviation ministry officials, including the aviation secretary, in March in this connection and was the forefront of lobbying for the same. This has forced many experts to ask, “Was the agreement just between two airline companies?”
After announcing the new arrangement, Goyal said, “I would like to thank the Indian government, especially the ministries of civil aviation, commerce and finance for having the foresight to introduce the historic reform of allowing FDI in civil aviation. This will result in the improvement of the economics of aviation, grow traffic at our airports and create job opportunities.”
Interestingly, this was the very reform that Goyal had once tried to stall in order to protect his airline’s interests.
Rewind to the early 1990s when Goyal was starting Jet through his aviation company Tail Winds. The aviation sector was open to FDI and he got Kuwait Airways and Gulf Air to buy into the firm. In 1997, the government decided to close the skies to foreign carriers. Although Goyal had to rejig his shareholding, Jet and Air Sahara benefited tremendously, and became superior competitors to Indian Airlines.
When Kingfisher was launched amidst much fanfare in 2003, the government moved swiftly to put in a clause that clipped the international ambitions of new operators. The rule meant airlines had to fly on the domestic circuit for at least five years before going abroad. This is also the time when Jet started to fly overseas and wouldn’t have appreciated competition. India’s aviation policy was tinkered with under the garb of helping Indian Airlines, but very little improvement has been seen in State-owned carrier. Attempts by foreign airlines to enter India were thwarted as the rule only allowed financial investors (funds) and not strategic investors (such as airlines) to put money in existing airlines. This was also when the Tata Group tried to ink a deal with Singapore Airlines.
According to former civil aviation secretary MK Kaw, Jet had tried to upset rules in the past. He writes in his book, An Outsider Everywhere – Revelations by an Insider, “The Tatas had mooted a proposal for a private airline with 40 percent equity from Singapore Airlines. As this would have been a formidable competitor, Jet tried hard to upset the rules regarding foreign equity contribution… The minister did not clear the file, despite several attempts on my part. The history of civil aviation in this country would have taken a different trajectory if Tata-Singapore Airlines had been allowed to float an airline.”
Captain Gopinath, who started Air Deccan and later sold it to Kingfisher, points out that to survive and thrive in a regulated environment like India, “One needed a few attributes, especially the ability to work with, and often manipulate, the government, and be quick in accessing capital… You had to be stupid not to succeed when you controlled the market.”
So if not by design, then by curious coincidence, Jet has managed another lease of life. Now, Jet and Etihad can plan routes efficiently, do code-sharing, and route flights to target passengers in select cities.
Aviation expert Cyrus Guzder says the deal will help Etihad take on the likes of Dubai-based Emirates. Jet has applied for more seats on the Southeast Asia sector, essentially becoming a carrier that will go back to focussing on its domestic circuit, and become a feeder of traffic from Singapore, Hong Kong and India to the UAE.
This promises to be a blow to other Indian airlines. One, those flying to the Gulf countries will now find it hard to beat the Jet-Etihad network. Two, no-frill carriers such as Indigo and SpiceJet may be forced to look for alliances that can give them an edge as well. Three, for those who cannot get alliances, they will consider fare strategies, which can be detrimental in a bid to get more market share. Four, the massive seat allotment to the sector and India’s working population in the Gulf promise to benefit the sector in general, where — now after the deal — Jet rules the roost.
Meanwhile India’s ambitions to be an aviation hub are bound to suffer. The airport privatisation and expansion was driven by the desire to create airline hubs, but with Jet making Abu Dhabi its new hub, that plan will take a big hit. This deal is also going to be a blow for Delhi and Mumbai airports run by GMR and GVK, respectively, hoping to drive infrastructure in the aviation sector. Homegrown infrastructure companies will lose out on passenger traffic, revenue from landing and gate rights, refuelling and will be forced to think of other ways to remain competitive.
If there is any reason to believe that India’s aviation interests will be compromised, then the government needs to look inwards. The aviation sector has been a disaster as airlines have struggled to make money due to inconsistent policies, irrational tax structures and poor infrastructure. No private entrepreneur wants to enter a sector to make losses, but in India’s case, the government has failed to create an environment that is supportive for business to thrive. “Our carriers are sending Indian aircraft to Dubai, Abu Dhabi for maintenance,” says Captain Gopinath. “Our rules around customs duty, custom clearance remain a big mess, there are sales tax issues and the list is endless.”
An aviation expert adds, “If Jet had not agreed to the Etihad deal, it would have been in a deeper mess in one year. This deal is a timely bailout for Jet, given the prospects of profitability for an airline leveraged with over $2 billion of debt.”
Goyal continues to lead the policy environment from the front. He is the first one to check into this exclusive club with a foreign airline investing in his carrier, suddenly rescuing himself from the brink of financial collapse to a future that promises to be sustainable for years to come.
The airline business is a long-term, money-sucking one, which once forced Virgin Atlantic Airways owner Richard Branson to say, “If you want to turn from a billionaire to a millionaire, start an airline.” Realising this, Goyal has yet again used policy tailwinds to overcome economic turbulence for his business.
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