Mid-Flight Crises

THE Tatas, with their proposed Rs 1,475-crore market base, have been threatening to alter the rules of domestic aviation for some time now. And as the pro- and anti-Tata players go into hectic lobbying mode with the crucial Foreign Investment Promotion Board (FIPB) meeting coming up, an internal memo prepared by top Indian Airlines (IA) brass predicts that the Tatas' entry into the aviation sector "would result in rendering the domestic carrier (IA) sick and we would have a replay of the 1950 scenario when the industry had to be nationalised". "Competition is good for Indian Airlines and all other domestic airlines," says the memo. "What's not desirable is the excess capacity."

According to the memo, the average passenger traffic during the last two years has declined by about 5 per cent compared to earlier projections. The Indian domestic air traffic has declined by approximately 1.4 per cent in 1996-97 and 2.6 per cent in 1997-98. Experts predict that because of the depressed state of the Indian economy, only marginal rates of growth can be expected even in the next few years.

"All major domestic airlines have had a seat occupancy factor of around 64-65 per cent, which is dangerously low," says the memo. "This is likely to plummet when IA inducts an additional six turboprop aircraft into its existing fleet. The ministry of civil aviation has also given permission to private airlines to add 17 more aircraft to their existing fleets. Further addition to the seat capacity will directly impact the bottom-lines of all airlines. Even if one optimistically assumes a growth rate of 5 per cent, in future, the seat occupancy will go down to around 54-55 per cent, well below the break-even seat factor of 70 per cent."

Meanwhile, a team of Tata executives met commerce minister Ramakrishna Hegde last week, but declined to comment on the future of the Tata airline, except to say that "it was purely a courtesy call". Such courtesies become important when a project the size of the Tatas' has to be approved by a variety of governmental agencies, the commerce ministry included. The stakes have risen so high that some key players are now involved in the deal-making. Among them, reportedly, is old Tata friend and industrialist Nusli Wadia.

IA contends it would be most seriously affected by a glut in the market, "not because it lacks the ability to compete with private airlines, but because it operates within certain inbuilt constraints". Being being the national carrier, IA operates on routes considered uneconomical by private airlines. For instance, it is the only provider of air services to Ladakh, Jammu & Kashmir, the Northeast and Andaman & Nicobar islands. While the DGCA requires only 10 per cent of an airline's operating capacity to be deployed on commercially unviable routes, IA deploys 15 to 18 per cent of its capacity to serve difficult-to-access areas.

The IA memo reiterates the fact that the airlines' operations are not guided solely by profit, but service to the country as well. "IA flights on certain international routes are more in keeping with the policy of the government of India rather than for commercial gains. Regular flights to Yangon, Karachi, Chittagong and Dhaka are therefore more in the interest of SAARC than IA." IA says it has the responsibility of connecting with all state capitals and flights to destinations like Agra, Khajuraho, Varanasi, Jaipur and Jodhpur "which, although major tourist centres, are not exactly money-spinners". Similarly, during times of national emergencies, it transports troops to trouble-spots all over the country. Therefore, "IA is not just a commercial airline, but a lifeline for the people of India. It operates these routes by subsidising them from the profits made on the trunk routes."

Anti-Tata civil aviation ministry officials allege that the Tatas, in their several proposals, haven't answered some key questions, pursuing a kind of "hidden agenda". They say the Tata proposals are silent on the nature of the "technical agreement" they propose to have with Singapore Airlines, once the Tatas' partner in the project, before the government ruled out any equity participation by a foreign airline in aviation (in what seemed an overt move to kill the Tata proposal). "Naturally, if the Tatas have a technical agreement with Singapore Airlines, it would still be a 'hub-and-spoke' arrangement, so where is the question of the Tatas going it alone?" wonders an official. The Tatas, however, say that they see no reason to reveal details of the technical agreement even before the proposal has been approved. With both IA and the Tatas having strong backers in the ruling BJP combine, there seems little hope out of the excesses of the aviation game.