PMO poser revives question of control in airlines
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In September 2012, India allowed foreign airlines to invest up to 49% in an Indian airline, provided substantial ownership and control remained with Indian nationals. Photo: Hindustan Times New Delhi: Is India beginning to insist that its policy on foreign airlines investing in local ones be adhered to in letter and in spirit? The Prime Minister’s Office (PMO) has written to the civil aviation ministry, asking whether the issuance of a licence to Air Asia India Pvt. Ltd, an airline effectively controlled by a Malaysian company, was in violation of the country’s airline ownership rules, especially those regarding control. The move is likely to have repercussions for the two other airlines that have foreign investment—the Tata-Singapore Airlines Ltd (SIA) joint venture called Vistara, and Jet Airways (India) Ltd. Spokespersons for AirAsia India and Tata-SIA declined comment. An e-mail, text message and calls made to a spokesperson for Jet Airways remained unanswered. In September 2012, India allowed foreign airlines to invest up to 49% in an Indian airline, provided substantial ownership and control remained with Indian nationals. Although it was initially designed to help Indian airlines shore up their financials and improve their operating performance with the help of foreign airlines keen to tap the growing Indian market, the new policy also controversially allowed foreign airlines to start new Indian airlines with local partners. Etihad Airways PJSC subsequently invested $379 million in Jet for a 24% stake. AirAsia Bhd of Malaysia said it would hold 49%—with Tata Sons Ltd holding 30% and Telestra Tradeplace Pvt. Ltd, 21%—in AirAsia India. And Singapore Airlines said it would hold 49%, with Tata Sons holding 51%, in Tata-SIA. The boards of airline start-ups like AirAsia India and Vistara as well as Jet Airways, after the investment by Etihad, may be dominated by Indian nationals, but operational control effectively vests with the foreign partner, some analysts say. “We see control with foreign joint venture partners visible, especially on day-to-day operations, but level of management control would vary from airline to airline,” said Kapil Kaul, South Asia chief executive officer at consulting firm Capa Centre for Aviation. “See Etihad and AirAsia in driver’s seat at Jet Airways and AirAsia India but at Vistara, Tata is in control but unfortunately not visible to a level required,” he added. In a letter last month to the aviation ministry, the PMO asked the ministry whether it had failed in its duties by clearing the airline and violated rules that specify that the substantial ownership and control of a local airline should rest with Indian nationals, according to two people with direct knowledge of the matter who asked not to be named. The PMO has also asked the ministry to find out who is responsible for conducting due diligence of substantial ownership and effective control when an airline licence is granted, according to a person familiar with the matter who asked not to be identified. Jitender Bhargava, a former Air India Ltd executive director, said hasty and shoddy implementation of the foreign direct investment policy has raised questions about the issue of substantive ownership and control. “It is quite clear who is controlling some of the new airlines. It is apparent that the due diligence conducted had left a lot to be desired, apparently on account of extraneous factors,” Bhargava said. A second person familiar with the situation said the ministry had already submitted its views to the courts on substantial ownership and effective control. The Delhi high court is examining a public interest litigation (PIL) on the issue. The PIL, filed by politician Subramanian Swamy, alleges that in AirAsia’s case, the Indian owners Tata Sons and Telestra are bound by clauses in their agreements that effectively give control to AirAsia, Mint reported on 25 July 2013. The investment by Tata Sons is strictly limited to only $9 million with no obligations or responsibilities as a shareholder in any form, management or control of the business, Swamy claimed. The Directorate General of Civil Aviation, which examined AirAsia India’s proposal, did not make the shareholding agreement public when it placed a notice earlier this year in the public domain seeking comments on the airline’s application. The issue of control cannot be ignored, said an Air India executive who spoke on condition of anonymity. “The PMO has hit the nail on the head,” the executive said. “When we moved to allowing foreign airlines, did we examine how bilateral flying rights will be impacted? These are the sovereign rights of India. Not only will a foreign airline get flying rights mandated to that country, but also use it from the Indian side in partnership with the local investor.”