Jet-Etihad: India’s Trebling Largesse, Abu Dhabi’s USD 50 Billion.

Jet Airways, India’s second largest airline by passengers carried, posted an *improved bottomline* for the financial year 2012-2013 when it posted a *Loss* of INR 4850.50 million against a loss of INR 12360 million in the previous year. However, the loss for the last quarter –January March- at INR 4955.30 million was higher than the annual loss, showing possibly steep deterioration in operations or an unusual finance charge. Whatever the fact, which only profit and loss statement would show, Jet airline and its majority stakeholder, Naresh Goyal, are bleeding white inline with India’s civil aviation industry.
Did Ajit Singh, civil aviation minister, act as a knight in shining armor to rescue Goyal and Jet Airways? Yesterday, Ajit Singh told reporters, “It is such an important deal…the first big deal in civil aviation ministry. In terms of FDI, it is bigger than any other deal this year. There are so many dimensions to it. Those opposing the deal are long on politics and short on facts”. Same day, Prime Minister’s Office (PMO) issued a clarification, “saying the stake-sale issue was still under examination and concerns raised about it had been referred to the relevant ministries. It also asserted that there were no differences within the government over the air services agreement between India and Abu Dhabi”. The *stake-sale issue* is about the *Rescue Act*, which had Abu Dhabi owned and based Etihad Airways inking a deal to pick up 24% stake in Goyal led Jet Airways on 24 April this year. This *Rescue Act* or at least a significant part of it –Is far more control ceded to Etihad than its 24% purchase of Jet Airways stake warrants?- is what PMO asserts is still open to examination. However, the sanctity of *air services agreement*, which is about the trebling of *bilateral entitlements of weekly airline seats between* Abu Dhabi and India, is beyond reproach and a shut case. What is significant is that a city state -albeit with a second richest sovereign wealth fund (Abu Dhabi Investment Authority (‚ADIA‛)) with US$ 627 billion assets under management (AUM)- has a bilateral service agreement with a country as large as India. In calendar year 2012 (The annual double digit growth that Abu Dhabi International Airport has been recording in the past decade is directly impacted by the aggressive expansion plans of the hub carrier, Etihad Airways), 14.7 million passengers moved through Abu Dhabi Airport. In contrast, India’s airports in financial year 2011-2012 moved 162.30 passengers, of which some 25% or 40.79 million were international passengers. On a calendar year basis, the figures for India in 2012 would be obviously higher considering air traffic in India showed double digit growth. Though Abu Dhabi airport’s performance stands out, Indian market is still three times larger. This shows who is going to gain more from this trebling of weekly bilateral seat entitlements.
What is India to gain from this largesse shown to Abu Dhabi? US$ 50 Billion!! That is a *promise* from Abu Dhabi to consider investing up to US$ 50 billion in India’s infrastructure projects. “A host of issues are considered when two countries discuss any increase in bilateral agreements. In this case, a commitment to invest $50 billion in the infrastructure sector of the country by Abu Dhabi was a key reason for us to agree to the increase”. The only hiccup was that the telltale link between bilateral air services agreement with Abu Dhabi, which was signed on 22 April just two days before Jet Airways were to ink a deal with Etihad, was not missed by many keen observers.
Were there others who came to the aid of civil aviation minister? It appears yes. Indian Express was told by an official that “the Inter-Ministerial Group (IMG) on bilaterals had initially approved adding 26,000 weekly seats to the existing 13,000 weekly seats between India and Abu Dhabi”. However, on orders from the prime minister (not PMO), “the matter was discussed by a Group of Ministers with the civil aviation minister, the finance minister (P Chidambaram), the external affairs minister (Salman Khurshid) and the commerce minister (Anand Sharma) as members. This group then gave a go-ahead to increase the additional bilateral entitlements from 26,000 seats to 40,000 seats”.
Money Life has done a nice articlethat lets us imagine what may have transpired in those 48 hours between 22 to 24 April keeping in mind above later developments. In the meanwhile, we can also drool over the *world class infrastructure*, which those US$ 50 billion from Abu Dhabi would help us build.
On 22nd April the Cabinet Committee approved 40,000 additional bilateral seat rights per week to Abu Dhabi. As soon as the bilateral deal was signed, both Jet and Etihad entered into an agreement on 24th April. Is it a coincidence or collusion?

The deal between Naresh Goyal-led Jet Airways and Etihad Airways, the national airline of the United Arab Emirates (UAE) is becoming controversial day by day. According to new information, not only the Director General of Civil Aviation (DGCA) but the Cabinet Committee also played a significant role that benefitted both Etihad and Goyal. While defending the deal on Tuesday, Ajit Singh, minister for civil aviation, said this (Jet-Etihad) was an important deal and those opposing it are long on politics and short on facts.

 In a release issued today, the Prime Minister’s Office (PMO) said, “There is absolutely no disagreement within the government or between the Ministers and Prime Minister on the matter. The Prime Minister is neither washing his hands off the Bilateral Air Services Agreement nor is the Prime Minister’s Office trying to do a U-turn on the issue now.”
According to the note issued by the PMO on 13 June 2013 and the minutes of a meetingby P Chidambaram, the finance minister (FM), it has now come to light that all major decisions regarding enhancing the seats and Jet-Etihad deal were taken during the 48 hours between 22nd April and 24th April 2013.
On 22nd April “under the direction of the Prime Minister” the Cabinet Committee approved the signing of the grant of 40,000 additional bilateral seat rights per week to Abu Dhabi, and less than 48 hours later on the 24th of April the bilateral agreement was signed between the two governments. On the same day, 24th April, the announcement and signing of the Etihad-Jet Airways deal was made. Is this merely a coincidence or collusion that facilitated the deal?
What is shocking are the notes from the PM and the FM (copies of which are with Moneylife) contradict each other. The minutes of the meeting held on 22nd April 2013 and signed by P Chidambaram states that the bilateral was mandated under the directions of the PM. However, the note from the PMO says that the PM was concerned with the proposals being made for the bilateral deal with Abu Dhabi. The note also clearly states “the decisions were not taken under the direction of the Prime Minister”. The question then is who is telling the truth?
Earlier, an inter-ministerial group (IMG) had raised objections to the bilateral deal to be entered with Abu Dhabi. However, soon after the IMG meeting, Ajit Singh, the minister of civil aviation approached the PM urgently seeking clearance for the bilateral deal and thus override the objections raised by the IMG. Singh also emphasised that a visit of an official from his ministry was scheduled and the postponement of this (visit) would send a wrong signal. Prime Minister Manmohan Singh then directed Chidambaram to hold a meetingwith Ajit Singh, Anand Sharma, minister of commerce and industries and Salman Khurshid, minister of external affairs. This meeting was held on 22 April 2013 itself.
After the meeting Chidambaram and all other three ministers met the PM. The meeting was also attended by Shivshankar Menon, National Security Advisor and Pulok Chatterji, principal secretary. During the meeting, Chidambaram briefed the PM about the agreement (between India and Abu Dhabi) reached earlier in the day for giving a mandate to the negotiating team to allow an additional entitlement of 40,000 seats per week in a phased manner over the next few years along with the third country code sharing and domestic code sharing.
The PMO raised following issues during the meeting…
1. Although ministry of external affairs and ministry of commerce support this substantial enhancement (40,000 seats per week), the Department of Economic Affairs (DEA) had reservations in the past on the enhancement.
2. It has been reported in the media that some airlines have opposed the request for enhancement.
3. It is also likely that private airport operators would not be supportive of this enhancement as they have invested substantial amounts in the airports at Delhi, Mumbai, Bangalore and Hyderabad and would like these to develop as hubs for air traffic.
4. One of the effects of this enhancement would be that long-distance traffic from India to Europe or North America would be diverted to Abu Dhabi.
5. There is a possibility that if, as reported, an Abu Dhabi airline acquires Jet Airways, this entity would control the bulk of the seats on this route.
6. There is possibility that other countries may also make similar requests.
7. Hence a calibrated approach may be necessary.
After this, Ajit Singh assured the PM that all these concerns were considered while arriving at the enhancement. “His considered view was that these concerns would not have any adverse impact on the Indian aviation sector. The minister was of the view that the additional capacity would enhance traffic to AAI airports where AAI has invested substantial funds in capacity enhancement. While allocating additional entitlements, requests of all domestic airlines would be kept in mind. The minister stated that the air traffic market was growing rapidly and there would be a need to enhance entitlements in any case. In addition, he felt that the overall context of liberalising FDI in civil aviation needed to be kept in mind. Concerns would also be addressed by phasing out the enhancement,” the note from PMO states.
Anand Sharma also mentioned attracting large volumes of FDI and FII from Abu Dhabi to India during the meeting. The note says, “His (Sharma’s) view was that Abu Dhabi currently has one of the largest Sovereign Wealth Funds in the world and it is in our interest to take steps to attract these funds to India”. “The finance minister and external affairs minister were in agreement with and endorsed the views of the other ministers. On the basis of the above, it was agreed to give an ‘in principle’ go-ahead to the negotiating team as per the formulations (40,000 seats per week),” the note says. Prime minister Singh, then directed that the matter may be brought to the Cabinet for a decision before operationalizing any agreements that may be arrived at by the government with the other party.
 However, this decision was implemented within 48 hours and on 24th April the bilateral agreement between India and Abu Dhabi was signed. Soon after signing the bilateral, the long-pending deal between Jet and Etihad was also signed on the same day.
 It is therefore obvious that the consideration to be received or received by Jet Airways was clearly linked and co-related to the value of the bilateral that Abu Dhabi was receiving along with its investmentin carrier. The sole beneficiary of the largesse of this bilateral deal was Naresh Goyal and Jet Airways and not India as the government wants us to believe. 
 Last month, the Foreign Investment Promotion Board (FIPB) deferred a decision on the Rs2,000-crore Jet-Etihad deal, the largest foreign investment in the Indian aviation sector, and sought clarity on control and ownership. As per the proposal, Jet Airways plans to sell 24% stake to Etihad for about Rs2,058 crore.
 Market regulator Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI) have already sought clarity from the domestic carrier on the transaction, to ensure that Etihad’s ownership powers in Jet remain in line with its 24% stake in the company’s equity capital.
 On 5 June 2013, Jet Airways chief executive Nikos Kardassis has resigned after a five-year stint with the carrier, and its chief operating officer Capt Hameed Ali was made the interim chief executive.
Reportedly, Etihad has been demanding a change in the management of Jet Airways, including removal of Goyal’s wife from the board.
For the quarter ended March, Jet reported deeper losses at Rs495.53 crore against a net loss of Rs298.12 crore for the same period year-ago. Total income from operations declined to Rs3,922 crore in the March quarter from Rs4,041.61 crore in the year-ago period. For the full fiscal 2012-13, the second largest airline improved its bottomline by narrowing the losses to Rs485.5 crore against a net loss of Rs1,236 crore in FY12.

 Tomorrow… Objections of Parliament, SEBI and CCI to the Jet-Etihad deal

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One Response to “Jet-Etihad: India’s Trebling Largesse, Abu Dhabi’s USD 50 Billion.”

  1. Sadanand Patwardhan Says:

    Money Life has come out with its second installment of promised article. Standing Committee has categorically said that the increase in bilaterals appears to facilitate one airline’s ability to strike a stake-sale deal with a foreign airline at a huge premium. The FIPB, SEBI and the Competition Commission are worried about ownership and control of JetAllowing Abu Dhabi to come up as another hub, which is only a three-hour flight away from the major Indian metros would certainly have an adverse impact on India’s efforts to establish a world-class hub in the country.The Committee was informed that Jet Airways sold three of its slots in London to Etihad, which was confirmed by the secretary of MCA. The Committee said, “Carriers have no right to sell the bilateral allotted to them to other airlines that too a foreign airline. The Committee recommends that the government should take away the slots from Jet Airways and the airlines should be penalized for selling the national property—bilateral.”

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