New Delhi: Etihad Airways PJSC may seek increased access to Indian destinations as part of its plan to pick up a 24% stake in Jet Airways (India) Ltd, a request that may put the aviation ministry in a bind as state-owned Air India Ltd has warned against opening the skies further.
“Etihad will have a strategic partnership with Jet. They have exhausted all the bilaterals with India. They will ask for this in the agreement with Jet Airways, if not explicitly at least implicitly. So we will have to expand. Otherwise why should they invest?” said a top ministry official who didn’t wish to be identified.
The deal to buy the stake in Jet is yet to be announced but is thought to be imminent with officials of the two airlines set to meet the country’s aviation and trade ministers.
Bilaterals are agreements signed between nations that stipulate the number of flights and destinations for the airlines of each country. In this case, the bilateral refers to that between India and the United Arab Emirates (UAE), of which Abu Dhabi-based Etihad is the national airline.
Air India chairman and managing director Rohit Nandan warned aviation secretary K.N. Srivastava in a 10 December letter that West Asian airlines investing in India and gaining greater access may result in “leakage of revenues for all Indian airlines”.
Jet promoter Naresh Goyal and Etihad executives are to meet aviation minister Ajit Singh on Thursday.
Etihad board member Ahmed Ali Al Sayegh will be accompanied by the airline’s general counsel and executive vice president, legal, James Callaghan, and chief strategy and planning officer Kevin Knight.
It’s not clear whether the government will be able to provide explicit support for increased access but the ministry official said Air India should now look upon itself as a stand alone commercial entity, suggesting that its objections weren’t likely to prevail.
An Etihad spokesman didn’t offer any comment on the seeking of such support. “If or when we do make further investments of this sort, we will announce them in line with regulatory and commercial requirements,” the person said.
A second ministry official however said any such request will be considered on a case-by-case basis while protecting the interests of other Indian airlines. He too asked that he not be identified.
Nandan’s two-page letter, reviewed by Mint, warns of threats from West Asian airlines to Indian airlines and airports in detail.
“The mega carriers from the Gulf which have small home markets have been seeking additional traffic rights and access to additional points of call to/from India, even though they already have access to many (in some cases as many as 10-15) points of call in India,” Nandan said in his letter.
“The airlines already have an edge over their Indian counterparts due to their huge financial resources and their unique model of ownership and governance. The operation of these airlines is also marked by a high component of so-called leakage of revenues for the Indian airlines.”
Dubai-based Emirates, for example, has 185 flights to India every week compared with about 52 for Etihad. Nandan said Emirates had been able to lure away international traffic from India using Sri Lanka’s traffic rights, by using its investment in Sri Lankan Airlines over a decade until 2010.
“At that time, by integrating the schedules of Sri Lankan Airlines, Emirates was using the India/Sri Lanka entitlements to carry traffic between Indian and sixth freedom destinations in USA/Europe/Gulf. As a result, the sixth freedom carriage of Sri Lankan Airlines to/from India was much higher earlier (i.e. around 80%) compared to that now (which has come down to about 50%), even though their total carriage to/from India is largely the same, i.e. about 8 million pax (passengers) in 2004 compared to about 9 million pax now (in June 2011/June 2012).”
The sixth freedom of the air refers to airlines being able to connect destinations through their home base (by using Dubai as a hub in the case of Emirates, for example).
While foreign direct investment (FDI) was welcome, it should not undermine Indian carriers, Nandan said.
“The objective of the FDI policy is to get supportive financing and airline management expertise for the airlines of India and this policy should not be permitted to be subverted as a means of gaining additional access to the Indian market,” he wrote.
In September, the government allowed overseas airlines to pick up stake of as much as 49% in cash-strapped Indian airlines hungry for capital.
The Comptroller and Auditor General of India (CAG) had pointed to wide access enjoyed by Emirates to Indian destinations. In its audit of Air India in 2011, CAG faulted the then aviation minister Praful Patel for not supporting the state-run airline and granting international flying rights to foreign carriers in bulk, especially those from West Asia, Mint reported on 9 September that year.
Dubai operated flights to six cities in a week in 2003-04 for a total of 10,400 seats. This increased to 54,200 seats a week by 2008-09 to 14 cities. Similarly, while Air India opposed another round of bilateral talks with Dubai in 2008, “the proposal for holding bilateral talks was approved by the minister”.