Jet Airways, national carrier?

Why the civil aviation ministry thought fit to sweeten the Etihad deal with additional seats on the India-Abu Dhabi sector - at the cost of Air India - is an issue that demands scrutiny

In the absence of a national aviation policy, the government has been taking ad hoc decisions from time to time to address the concerns of the aviation sector. Being ad hoc in character, several decisions taken to respond to a particular crisis have often led to the creation of other problems for the industry. This should, however, not come as a surprise to anyone because the ministry of civil aviation, managed by bureaucrats, besides lacking the vision for the industry, does not have the requisite experience and understanding of the sector. If proof were needed to prove this point, one has only to see how the national carrier, Air India, has been systematically harmed through numerous decisions.

A policy decision relating to foreign direct investment (FDI) by foreign airlines in domestic airlines, taken in September 2012, was welcomed by all, even though it came too late for Kingfisher Airlines, the airline that had originally mooted the demand. With the finances of most domestic airlines in disarray, debt on the balance sheet mounting, losses being incurred quarter after quarter, and banks refusing to extend any more loans, investment by foreign airlines was considered imperative for survival.

Jet Airways was among the first to begin parleys with interested airlines, notably Abu Dhabi-based Etihad. After months of discussions, hopping through the power corridors in Delhi, meeting one minister after another for what was described as an exercise in seeking assurances for safety of investment, when the deal was finally struck earlier this week between the two airlines, it did not evoke the response one would have expected. Though there was unanimity that the two airlines would stand to benefit enormously, the bitterness came owing to the sweetener added by the ministry of civil aviation by way of granting over 40,000 additional seats per week on the India-Abu Dhabi sector over a three-year period. These seats were given away at a time when India was witnessing negative growth. Where was the need for additional capacity?

This has led to a question: was the grant of additional seats factored in for Jet Airways to obtain a higher valuation compared to what was being discussed in January 2013? Given that the two announcements - stake sale and grant of additional seats - came within hours of each other, was an assurance on additional seats demanded by the airlines and given by the government before the pronouncement of stake sale? These are serious questions because, if the link can be established, it is not only akin to insider trading but also demonstrates how decisions can be forced out of the government by powerful individuals.

Civil Aviation Minister Ajit Singh has scoffed at any such insinuation, stating that no assurance was held out. Can anyone expect policy makers to say anything else in their defence in such a situation? Also, can one ignore the clout that Naresh Goyal has always wielded with the government in the formulation of civil aviation policies?

What is also interesting is the fact that grant of additional seats was preceded by a meeting chaired by the civil aviation secretary, in which all stakeholders participated. All domestic airlines, including Air India, and airport operators were unanimous in opposing the grant of seats in such huge numbers. Ignoring their pleas, the ministry still went ahead, giving rise to yet another question: was the meeting a ritual to be gone through, and why were views sought when they were not being considered? What were the compulsions that dictated the decision, without reduction of even a single seat from the demanded number? Isn't he answerable to the nation as to what prompted him to disregard the stakeholders' views, if not provide justification for overruling their views?

The views expressed by the airlines and airport operators were indeed legitimate. If airlines felt that one airline would stand to gain at the expense of others, airport operators thought the creation of a hub for Indian traffic in Abu Dhabi will ensure that India will never have a hub of its own, besides adversely impacting the growth of Indian airports.

One can always justify a decision, however dubious, by stating that the grant of seats will enhance competition, and will be in passengers' interest. But the question whether it is the government's business to sweeten the deal and help an airline obtain a higher valuation still can't be ducked.

The government has formulated a turnaround plan for the national carrier and has already infused about Rs 8,000 crore of taxpayer money. Can Air India attain a turnaround in changed circumstances when someone else is being allowed to take away its traffic? What will it do with its large fleet of long-haul aircraft, which was increased from 10 to 50 by the same government? What will it do with its 350-seater B777-300 aircraft, which were bought on the assumption that it would get passengers from neighbouring cities to fly to destinations in Europe and the US, a market it will lose once Jet Airways begins operations from 23 Indian cities to Abu Dhabi for flying onwards?

What one can also not ignore is the fact that the grant of additional seats on the India-Abu Dhabi sector is bound to give rise to similar demands from other countries. Will the government have a different yardstick for them? Consider a hypothetical situation of a southeast Asian carrier showing interest in SpiceJet. Will the government help create another hub in southeast Asia to facilitate FDI in SpiceJet by granting a huge number of seats? Market paradigms have indeed been changed by the government in one stroke. All other airlines will also be forced to relook at their business models and fleet acquisition plans in the changed circumstances.

With the survival of Air India made still more difficult, let us welcome Jet Airways as the national carrier because it enjoys the patronage of the Government of India and has been given a head start!

The writer is former Executive Director, Air India