That the Prime Minister’s Office (PMO) has only now woken up to the jackpot given away in the Jet-Etihad deal comes as a surprise. From day one, it was clear that this was a unilateral pro-Abu Dhabi deal. All the hoopla around it was discussed threadbare when the deal was being signed. Union Aviation Minister Ajit Singh proudly gave sound bites to television channels. Even now he has reportedly suggested he’d resign if this deal fell through.
Then, why clip the deal now when the government initially gave the wind beneath its wings? Is the PMO suddenly worried about the resurgence of a 2G-like situation? Why did it take MPs of other parties to highlight these concerns for the PMO to take notice of them when everyone in the government was completely in the know of the deal’s implications and goings-on?
“It’s a dubious deal and a manifestation of all that has been wrong with the aviation sector,” says Jitender Bhargava, former spokesperson of Air India.
The deal, which involves Etihad buying a 24 percent stake in Jet Airways for about Rs 2,000 crore is the largest foreign investment proposal in the aviation sector. It is now facing regulatory hurdles — such as approval from the Foreign Investment Promotion Board — with various departments raising concerns over the ultimate control of Jet Airways post transaction. The furore has further built up with Janata Party president Subramanian Swamy and BJP leader Jaswant Singh writing to the prime minister raising questions over the deal.
So what was really wrong with the deal? Just as Jet Airways and Etihad Airways were busy sending out press releases of the tie-up on 25 April, a bilateral decision — to raise the weekly air seats capacity between India and the UAE to almost four times — was also struck. But this announcement seemed to have got buried in the din of the deal news. The government liberalised the weekly seat quota from about 13,000 to 37,000 extra seats (on each side of the sector), signalling to the aviation industry that India-Abu Dhabi promises to be one of the busiest routes for airline companies. This effectively presented the Gulf-bound market to Jet-Etihad on a platter. Jaswant Singh has raised concern over the coincidental timing of the two events.
“The problem,” explains Bhargava “is clearly not with lifting the FDI part that allowed Etihad to buy into Jet. The change in those norms was bound to benefit some players. But what’s wrong is sweetening this deal with so many seats in a bilateral decision.”
In this connection, Jet Airways Chairman Naresh Goyal met civil aviation ministry officials, including the aviation secretary in March, to lobby for the allocation. This has made experts sit up and ask if the deal was just between two airline companies.
Announcing the partnership, Goyal had said, “I would like to thank the Government of India, especially the Ministries of Civil Aviation, Commerce and Industry, and Finance for having the foresight to introduce the historic reform of allowing FDI into civil aviation in India. Infusion of FDI in the domestic sector will result in the improvement of the economics of aviation, grow traffic at our airports and create job opportunities.”
Ironically, this was the very reform Goyal had once tried to stall in order to protect his interests. At a time when other airline companies were clamouring for foreign investment in aviation, Goyal rallied against such a move in order to secure Jet’s domestic market share. But after the colossal debt the airline came under, he seemed desperate to find a buyer to rescue his carrier and rallied, this time, for FDI.
“From the very beginning, this was meant just for Jet,” says a source in the aviation sector, who was privy to details of the deal. “It’s almost like Jet went to Abu Dhabi and said ‘you give me equity, I will get you the bilateral’.”
In this light, the latest political drama is not based on any new development. In April, an inter-ministerial group (IMG) headed by Finance Minister P Chidambaram had flagged several issues in the deal, including concerns around ownership, control structure and implications for the industry as a whole. It has also been widely reported that no other player in the sector is in favour of this expansion of seat quota.
In an earlier article (Lord of The Policy Wings; 11 May), TEHELKA had reported that India should worry about its aviation ambitions given how skewed the Jet-Etihad deal is in favour of Abu Dhabi. Airlines flying to the Gulf countries will now find it hard to beat the Jet-Etihad network. Moreover, no-frill carriers such as Indigo and SpiceJet will find it less attractive to fly this route, as they may not be able to compete with Jet and Etihad’s combined offers.
For those who cannot strike such alliances, they will consider fare strategies, which can be detrimental in a bid to get more market share. Last, but not the least, the massive seat allotment and India’s working population in the Gulf promise to benefit the sector in general, where — now after the deal — Jet rules the roost.
The IMG also noted that a country that’s pumping in money to revive its national carrier should not thwart those efforts with such bilateral policies. So on the one hand, the government was injecting crores into Air India to save it, while on the other, it was allowing Jet-Etihad to take away its potential traffic.
India’s ambitions to be an aviation hub are bound to suffer because of this deal. 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, another issue raised by the IMG. 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.
Across television news channels, Congress spokesperson Sanjay Jha has been defending the deal saying the bilateral was open to all airlines. That argument is inherently flawed because Etihad is the only airline with majority access to Abu Dhabi, its own hub.
“Better late than never,” says Air Deccan founder Captain Gopinath. “It’s time we assess the merit of this deal and its impact on aviation. It’s time for a hard look at cases like this.”
It is not as if India may not benefit by stalling this deal; that no longer even matters. The question to ask is: why is every decision an afterthought? How many transactions is India going to start reviewing in retrospect or as an aftermath of a political fallout? In Jet-Etihad’s defence, the case was known to all. If the government decided to overlook critical aspects of the deal, how is this the fault of either company?
With this deal now likely to be reconsidered, Indian aviation gets yet another blow. “Dubai, the UAE, America and China have all realised the strategic potential of having aviation as a cornerstone of their interests,” says Gopinath. “When will we?”
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