Jet-Etihad: Is it government’s business to aid private enterprise?

Jitender Bhargava, Former Executive Director, Air India

The Jet-Etihad deal now embroiled in a controversy has once again demonstrated the lacunae in our decision making process; that rules are openly flouted by ministers and crony capitalism is widespread.

Else, how does one explain a purely commercial deal between two airlines, one foreign and one Indian, under the FDI policy, being facilitated through grant of 37000 seats per week on the India-Abu Dhabi sector? Aviation analysts have been unanimous that without the government bestowing this largesse the agreement between Jet and Etihad would not have materialised.

What this government patronage has done is to have significantly raised Jet Airways valuation and yet the Minister of Civil Aviation, Ajit Singh, believes that no wrong has been committed.

Let us look at the facts. Jet Airways has nearly Rs 13,000 crore of debt, a negative net worth, and losses of Rs 1,236 crore in 2011-12. The premium eventually given by Etihad under the deal is higher than what Jet was demanding in earlier negotiations – around Rs 1,780 crore for a 24% stake.

In an interview to the media in February, 2013, Sheikh Hamed bin Zaved al-Nahayan, Chief of Etihad Airways, said that this price was too high, and said he wanted to “revise it.”  Why is it that two months later Jet managed to get Rs 2058 crore? The only reasoning is the factoring in of 37000 seats per week doled out so generously by an obliging government.

Ajit Singh on his part has been justifying the deal by stating that it will provide better connectivity, passengers will enjoy lower fares and that the grant of seats under this bilateral agreement is better than what India got from Emirates or Lufthansa when Praful Patel signed similar bilateral agreements. In doing so, he has, however, conveniently sidestepped the larger issue of morality, ethics and the question whether it is government’s business to aid a private Indian enterprise or work for the benefit of a foreign airline because the agreement on 37000 seats was signed within six hours of Jet-Etihad announcing their agreement? It will be naive for anyone to believe that the two deals did not have anything to do with each other, or that Jet-Etihad were not privy to the decision in advance, and that it was a mere coincidence that the two announcements came within hours of each other. This is particularly suspect because the person involved is Naresh Goyal, who has always wielded a huge clout in government for framing various civil aviation policies to promote his airline and to harm competing airlines.

The civil aviation ministry whose prime function is to develop country’s aviation sector has also overlooked the impact of the deal on its future growth. Besides the airports at Delhi, Mumbai, Kolkota, Chennai, all Indian airlines will also lose out because of the kind of stranglehold the Jet-Etihad combination is being assured. Indian carriers, many of which have just begun flying abroad will never be able to prosper. Jet Airways itself, though being a good airline, has not been able to withstand competition from mega-European carriers on international routes and forced to withdraw flights from many of them.

Even though Mr Dinesh Trivedi, MP, had cautioned the prime minister of the proposed agreement’s implications on Indian aviation industry even before the deal was signed, it was allowed to go through with several ministers – P Chidambaram, Anand Sharma, Salman Khurshid besides Ajit Singh working with great alacrity and approving the broad parameters of the deal in under 48 hours, overruling the objections put in by bureaucrats associated with various ministries. When has one seen the government machinery working so efficiently?

However, as the political parties and the media were busy with the Ashwini Kumar-Pawan Bansal sordid saga at that time, the deal, though having severe adverse impact on the country’s aviation sector, did not elicit the kind of attention it deserved. However, after the parliamentary committee on Transport, headed by Mr Sitaram Yechury, submitted its damning report and prominent MPs like Dinesh Trivedi, Gurudas Dasgupta, Jaswant Singh questioned the tie-up and Subramanian Swamy threatened to file a PIL, if the PM did not block the deal, the controversy we are witnessing today erupted. Yashwant Singh of BJP has also said that it smacks of a scam.

Better late than never, as they say, the PM has now intervened to avoid any further embarrassment. While Singh has seemingly protested to the UPA Chairman, Sonia Gandhi, in his meeting with her on July 5 regarding the various letters on the deal put in public domain by the PMO, it may not be smooth sailing for Ajit Singh, and possibly the deal. The government will in all probability try and avoid another scam hitting them and that too when the general elections are only a few months away.

It is perhaps due to this belated realisation that the PM now wants to absolve himself of any role in the deal. This has been particularly due to Mr Chidambaram in the note of April 22, 2013 having unambiguously stated that the meeting of various ministers he chaired to consider the deal was held at the direction of the prime minister, implying thereby that the deal had the prime minister’s blessings.

With letters being issued by the prime minister’s office to clarify his role, Ajit Singh defending the decision and stating that it was a collective decision of the ministers and not his alone, it is time that the entire issue relating to the deal is scrutinised, and the deal relating to grant of seats annulled to protect national interest. India, as an emerging economic power, can’t be seen as bartering its long term interests for the well being of one airline or some individuals.