THE sky is now literally the limit for the Indian government. On April 1, the Union Cabinet decided the time was not yet ripe for foreign airlines to enter Indian skies, bringing the curtain down on the Rs 2,400-crore joint venture proposal between the Tatas and Singapore International Airlines (SIA), hanging fire since March '95.
Clearly, domestic airlines are breathing a lot easier, especially since the government announced new investment norms for foreign airlines. On April 3, the government directed Jet Airways to shed its 40 per cent foreign equity stake in the next six months. Sixty per cent of the equity in Jet Airways is with NRI Naresh Goyal and the rest split equally between Gulf Air and Kuwait Air.
Defending his decision, Civil Aviation Minister C.M. Ibrahim said: "Domestic carriers in which foreign airlines hold equity directly or indirectly have been given six months to disinvest." And what of the Tata-SIA bid? "I've always maintained that they did not have a chance. Which country allows foreign airlines to ply on its routes?"
According to Ibrahim, the Tata-SIA venture wouldn't have brought in any significant investment. "The Rs 2,400-crore investment would have been made in buying aircraft in Europe and the US. A foreign investor in, say, the biscuits industry provides employment and backward linkages in the form of wheat procured from Indian farmers. An airline venture does not have similar benefits." There's also the social purpose served by domestic airlines like Indian Airlines (IA). Like evacuating Indians from Kuwait and Amarnath. "Can I ask foreign airlines to do the same?" he asks.
Interestingly, the issue of allowing entry to foreign airlines, according to Civil Aviation Secretary Yogesh Chandra, had been sent back to the ministry for "fresh consultations with parties concerned". Which was just routine, says a source who was part of this exercise. "Officials seemed to have made up their mind on what needed to be done. They were most concerned that domestic operations would suffer," he said.
SIA officials admit that their proposal, if accepted, would have hit all domestic carriers. The stiffest resistance reportedly came from Jet Airways, which denied the charge. BJP MP Pramod Mahajan played a major role in blocking the Tata-SIA project on 'swade-shi' grounds. Within hours of the decision, SIA severed relations with Jet, its general sales agent in India. It later explained that the decision had been taken on March 27, before the new policy was announced.
Support for Tata-SIA came from unexpected quarters. Said a senior official of CII: "We feel that minority foreign stake, up to 49 or 40 per cent, should be allowed in aviation, since you already allow 49 per cent in telecom." Adds an aviation lawyer: "If Jet Airways has been given so much time to shed its foreign partners, how can Tatas be denied the right? It may be legally difficult to prove the foreign stake in Jet and in a year's time the partners may 'restructure' the pattern to fit the policy. The Tatas might well consider such permutations." While Bombay House maintains a silence on the issue, the Tatas are far from shelving the project and may be planning a fresh bid minus SIA. They might seek funds from a foreign agency under an informal arrangement with SIA. There is no bar on a non-aviation foreign company subscribing to the venture.
The relief was evident in IA. Managing director P.C. Sen told an office meeting that the decision would help domestic airlines consolidate their position. IA, which carries 63 per cent of the total domestic traffic, refuted the Tatas' claim that domestic passenger capacity is growing at the rate of 12 per cent a year. Quoting an independent Boeing study, Sen argued that actual growth is only 5 per cent, leading to overcapacity in the industry. IA, which feels fiscal '96-97 would be its best year since '88-89, is extra careful in guarding its flanks since, by its own admission, the competition is telling. The March issue of its inhouse magazine Image quotes an IMRB survey to say that there has been an alarming drop in IA's image rating. "Jet Air (which has a share of 21 per cent) has almost caught up with us. It enjoys the status of the most preferred airline among executive class passengers while IA maintains minimal lead among economy class fliers."
Some analysts do argue that the Tata project was too ambitious. Says aviation consultant Brij Bhardwaj: "The SIA was trying to project itself as the hub around which other Asian airlines would revolve as spokes. In any case, why do the Tatas need a partner?" Indeed, with the government protecting IA, the experience of other private airlines doesn't warrant an additional 30 or so aircraft joining the skies right now, as promised by the Tata-SIA project. For all new ventures, the forecast signals only bad weather and turbulence.
