The Defiant One

The crux of the fresh outpourings on the project—admittedly the most contentious since Indian Airlines (IA) grounded its state-of-art A-320s in the late '80s—arises from an informal exercise started by Union aviation secretary M.K. Kaw recently. This included setting up an advisory panel which took detailed 'opinions' from senior Civil Aviation Ministry officials, people outside the ambit of the government circles and private airline operators on what could be done to open up the skies and the scope and justification of including Tata-SIA in the scheme of things.

This informal exercise appears to have boomeranged on the ministry itself. What appears to have set the cat among the pigeons is a draft paper prepared by the Directorate General of Civil Aviation (DGCA) which clearly proposes a 40 per cent equity participation by foreign airlines.

According to the paper, "efforts would be made to widen the equity base of the national carriers. Foreign equity up to a limit of 40 per cent from any source shall be permitted in private airlines." The draft policy also suggests that the source of this investment should not be a criterion of investment in these sectors. What this means is that C.M. Ibrahim's 'new' aviation policy, which banned any equity holding by foreign airlines in Indian domestic air services just over two months, could already be on the way to becoming history. The only concession the draft policy makes to the 'nationalist' sentiments is the proposal that the chairman, managing director, chief executive officer and two-thirds of the board of directors in a domestic airline should be Indian nationals or NRIs.

But the war is hardly over for Tata-SIA and other foreign airlines which could be eyeing the Indian market. According to projections presented by one joint secretary to Kaw's panel, the basics of this draft policy are flawed: "All countries in the world zealously protect their individual rights and regulate operations of foreign air services from their territory. For example, it has taken India more than four decades to get more than two entry points in the US, and this has been made possible only after India had been made to agree to permit a large number of US airlines to operate unlimited services in the domestic market."

And of course, private operators currently flying the Indian skies are vehemently opposed to the draft policy proposals; if Tata-SIA is allowed, it could simply muscle all the other private airlines out of existence. The acceptance of the draft policy is tantamount to permitting foreign airlines to circumvent existing air service agreements and make a backdoor entry to an unlimited number of cities in India over and above the negotiated rights in such air service agreements, they say. This will have a drastic adverse impact on Air-India.

"When a domestic airline and the international airline having equity in it operate in tandem, they can provide seamless travel from domestic to foreign destinations," says a private airline spokesperson. "This being the case, it would be more than probable that this combination could provide very low fares in the domestic segment, resulting in predatory pricing leading to the collapse of the national airlines." Significantly, while the draft proposes to limit foreign investment to 40 per cent, there is no foreign equity cap for projects related to the expansion of existing airports. But foreign investment is limited to 40 per cent for setting up of maintenance bases and new airports. If and when the new policy comes into being, it clearly would be a fillip to the Tata-Raytheon-Singapore consortium airport project in Bangalore. This in itself represents a big change from the last couple of months when the Bangalore international airport was mired in controversy.

The draft policy says that while the import of aircraft shall be regulated through the aircraft acquisition committee of the Civil Aviation Ministry, the choice and size of aircraft would be left to the operators. The operators, it says, shall try to keep their fleet as young as possible and the average age of the aircraft shall be below 10 years.

All this, say observers, is designed to keep the Tata-SIA project afloat. According to projections submitted by Tata-SIA, India will require the equivalent of an additional 78 aircraft by December 2001, and that Tata-SIA will acquire brand new airplanes. Indian Airlines' Boeing 737s are 25 years old.

But even while the new policy was being discussed, a storm was clearly brewing. BJP MP Pramod Mahajan, regarded as very close to the Jet Airways group, assailed the decision. "Such a step would be fatal to Indian interests. Why doesn't the Tata group come out with its own scheme instead of roping in foreigners?" he wanted to know. The BJP, he thundered, would never allow such a union to take place. Even United Front constituent CPI(M) was categorical in attacking the proposed draft, calling it 'anti-national'. The Civil Aviation Ministry immediately went in for a damage control exercise. Kaw firmly ruled out the suggestion that the Tata-Singapore venture was on the anvil. "There is no question of it. At this point, it is no more than a suggestion," he claimed.

Top Tata executives who met Natarajan last week were equally horrified that their efforts seemed to be going up in flames. But on a trade visit to London last month, Chi-dambaram said the new government was not averse to the idea of reviewing the Tata-SIA project. Clearly, it is only these little nuggets that have still kept the project afloat.