Whose Loss Is It Anyway?

After three years of hanging on desperately, the Tatas have finally said goodbye to their airline project. Making the group the first Indian corporate house to pull out of a prestigious project on the ground of 'delay' and the government's 'obstructive' attitude.

At the end of a long battle marked by several unanswered questions, murky politics and bureaucratic buck-passing, peaking last fortnight when the civil aviation ministry decided to appoint yet another expert committee to go into the Tata proposal, Bombay House decided to abdicate. And, despite some conciliatory noises by senior government functionaries, it says there's no question of going back.

In separate letters to the civil aviation ministry and the Foreign Investment Promotion Board (FIPB), Tata Industries chairman Sujit Gupta said his company was 'frustrated' at the inordinate delay in taking a decision. "This is a careful and considered decision. We're not waiting any longer," Gupta told reporters. The Tatas vision of aviation—once pioneered by JRD himself—now lies shattered.

With good reason. The Tatas say they were hopeful of a decision—one way or the other—in August. A ministry meeting scheduled for August 8 was postponed to August 15, and then to August 17 but couldn't be held even on that day because of the Union secretaries' reshuffle. So it was postponed again to August 22. It was finally held on August 29 where it was decided to refer the Tata proposal to an experts committee "in six weeks' time".

That was the final straw. A note issued by Bombay House sums up the mood behind the decision: "It is over three years since Tata Industries first applied for a domestic airline. The applications were in compliance with all known policies and practices of the (civil aviation) ministry... Despite this, the Tata proposal to provide the travelling public in India with a world-class airline remained on paper due to the inability of four successive governments to implement their own policies."

Stockmarket circles, however, seem quietly relieved. Many feel the Tatas' decision to pull out of an expensive diversification at a time when the group is reeling under the impact of recession is extremely wise (see box). A wisdom which owes its origin to a global consultant group advising the Tatas on business consolidation.

Who gains from the Tata pullout? Certainly not the country where the aviation industry could anyday do with some competition and the citizens with some more and better service. Certainly not the government which, despite its obvious stake in keeping the turf protected for the homegrown Indian Airlines, loses considerable face among the global business community at a time it's desperately trying to brush up its investor-friendly image. Tata executives say 'certain private operators' have been working overtime to keep them out, with some help from a section of the ruling BJP coalition.

The government is understandably piqued. Civil aviation minister Ananth Kumar says the Tata decision is hasty. "Our government has been in power for barely six months...after all, we have to scrutinise the papers submitted by them." Adds advisor to the finance minister Mohan Guruswamy: "There was no compulsion on the Tatas to withdraw from the project. They have acted in haste and with immaturity. Maybe they themselves were not serious about the project, because this would have called for huge investments and the Tata group is already facing rough weather and also have a very high profile car project in hand, which they want to start soon. "

Guruswamy goes even further. "We had prepared an eight-point list in the government of our achievements which we wanted to show the world at the Fund-Bank meetings in New York in September-October this year; the Tata project was amongst the top of that list. We were pretty certain by that time, things would've cleared."

TATA detractors maintain that the company was attempting a 'backdoor entry'. Says a top airline executive: "The new proposal submitted in 1997 was cleverly changed. Equity participation by the Singapore Airlines was replaced by another Singapore government-owned financial institution, the Singapore Investment Company. They said they would conclude a technical services agreement with Singapore Airlines. That, as per their own estimates, would entail a technical services fee of Rs 197 crore over a five-year period."

According to him, while Singapore Airlines already have liberal bilateral rights in India, the saturation of the Singapore market with a 37 per cent drop in traffic has prompted them to look for pastures elsewhere. "In addition, the Tatas have declined to take some uncomfortable queries about their association with Singapore Airlines," he points out.

But Tata executives deny this. Says manager (project) Eric Vas: "We have been prompt in replying to any queries raised by the government." Also, they argue, while private operators have opposed their entry on the plea of excess capacity, the purchase of 25 aircraft okayed by the ministry in June belies that claim.

Even as the pitch seems to have been laid for the private operators, the government is sending out signals to the Tatas to play on. Says Guruswamy: "The government is disappointed. But at the same time, we cannot go and request them to reconsider. It is up to them and only them." But right now, the Tatas are just not interested.