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India-Abu Dhabi agreement may have clinched Jet-Etihad deal

Parliamentary panel has asked for a reconsideration of the agreement by the aviation ministry with Abu Dhabi
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First Published: Tue, May 07 2013. 11 31 PM IST
Etihad paid a premium of 42% over the market price to pick up a 24% stake in Jet Airways, the parliamentary standing committee on transport, tourism and culture commented in a report. Photo: Ramesh Pathania/ Mint
Etihad paid a premium of 42% over the market price to pick up a 24% stake in Jet Airways, the parliamentary standing committee on transport, tourism and culture commented in a report. Photo: Ramesh Pathania/ Mint
Updated: Wed, May 08 2013. 02 50 PM IST
New Delhi: The government may have allowed a large expansion of flying rights to Abu Dhabi to sweeten a deal between Jet Airways (India) Ltd and Etihad Airways PJSC, the national airline of the United Arab Emirates (UAE), documents reviewed by Mint show.
Etihad paid a premium of 42% over the market price to pick up a 24% stake in Jet Airways, the parliamentary standing committee on transport, tourism and culture, led by Sitaram Yechury of the Communist Party of India (Marxist), commented in a report released on 3 May.
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The UAE carrier agreed to buy the stake for $379 million (around Rs.2,060 crore today) on 24 April, the largest foreign direct investment (FDI) in the sector.
On the same day, the government agreed to expand the number of seats available on weekly flights between India and Abu Dhabi nearly four-fold to 50,000.
Etihad agreed to buy Jet shares at Rs.754.74 apiece, compared with the closing price of Rs.573.85 a day before the deal.
Etihad also agreed to buy a majority stake in Jet Privilege, the frequent flyer programme of the Indian airline, for $150 million, having already purchased its Heathrow airport slots for $70 million.
The deal was made possible by the Indian government changing its policy on FDI in aviation in September to allow overseas airlines to invest in local airlines.
“The increase in bilateral capacity put the premium that Etihad paid in perspective,” the 41-member parliamentary panel said.
“The committee is surprised to see this increase in the bilateral (agreement) to 36,670 seats a week by the government. Prima facie, this move appears to facilitate one airline to strike a deal with a foreign airline for its stake at a huge premium. The committee feels that the huge premium could be a backhanded way of obtaining access to the huge civil aviation market in India,” it added.
Prime Minister Manmohan Singh called a meeting to discuss the expansion of bilateral flying rights with the UAE that was opposed by local airlines (except Jet Airways) and airport operators.
Some members of Parliament had also opposed the move, echoing a previous objection in a separate case by the Comptroller and Auditor General of India (CAG), the government’s statutory auditor.
GMR Infrastructure Ltd, which runs the Delhi and Hyderabad airports, and GVK Power and Infrastructure Ltd, operator of the Mumbai and Bangalore airports, the four airports that account for at least 60% of India’s air traffic, as well as airlines like state-run Air India Ltd, InterGlobe Aviation Ltd-owned IndiGo and Kalanithi Maran-owned SpiceJet Ltd, which together control at least 67% of the passenger traffic, had opposed the demand of Jet Airways in meetings with the aviation ministry.
On 5 April, Naresh Goyal-owned Jet Airways asked the aviation ministry to start talks immediately with Abu Dhabi as the airline needed an additional 40,000 seats to expand over the next three years.
Etihad, West Asia’s third largest airline, was then in discussions to buy the stake in loss-making Jet Airways.
On 16 April, the ministry issued a letter to all airlines and airports calling for an “inter-ministerial meeting to finalize the negotiating strategy for forthcoming bilateral air services talks between India and UAE”.
Airlines and airport operators said allowing market access was detrimental to existing airlines and would end any hope of turning Indian airports into hubs.
This was followed by a meeting of ministers on 22 April, “under the chairmanship of Shri P. Chidambaram, minister of finance, regarding bilateral relations of India with UAE, including air services matters”, according to the minutes of the meeting reviewed by Mint.
Commerce and industry minister Anand Sharma, external affairs minister Salman Khurshid and aviation minister Ajit Singh were also present.
This was the day talks were supposed to begin in Abu Dhabi and several aviation ministry officials were already there.
As a result of the mandate coming from the highest quarters in the government, the talks were delayed, said a person who was present at the meetings in Abu Dhabi. He declined to be named.
Talks started in Abu Dhabi on 23 April after the meeting chaired by Chidambaram provided a clear mandate, the person said.
“The following mandate was approved for the proposed bilateral air services negotiations: Additional entitlement up to 40,000 seats per week may be considered in addition to the current entitlement in a phased manner over next few years, preferably 3 to 5 years,” according to the minutes of the 22 April meeting.
“Third country code sharing (code sharing with designated airline of third country other than India and UAE) and domestic code sharing may be allowed. Any other issue relating to air service agreement may also be considered in the overall interest of bilateral relationship,” according to the minutes.
“It was emphasized that the issue of enhancement in air traffic entitlement between both the countries needs to be considered in overall economic interest of India and government’s policy of liberalization for attracting foreign investment in various sectors including civil aviation,” the minutes said.
The Prime Minister’s Office did not respond to Mint’s queries on the matter on Friday. Chidambaram’s office also did not respond to queries till the time of going to print.
Talks between the UAE and India started on 23 April and were extended to the next day.
On 24 April, Etihad announced it was purchasing a stake in Jet Airways after four months of talks.
Later the same day, the aviation ministry released a statement that it had approved an additional 36,670 seats on weekly flights between India and Abu Dhabi.
This access was allowed despite CAG’s criticism of a move to grant increased flying rights to Dubai between 2005 and 2010.
Dubai carriers had the rights to operate flights with 10,400 seats a week to India in 2003-04 to six cities. This increased to 54,200 seats a week by 2008-09 to 14 cities.
The rights benefiting Dubai-based Emirates were granted when Praful Patel was aviation minister. The move was criticized by CAG, which said India’s interests were not protected in the bilateral talks with Dubai.
CAG said in its audit report that more flying rights should not be granted until India had its own hub.
Air service access and capacity entitlements are typically granted under agreements at the country level, but in the case of the UAE, India has signed such agreements with each emirate, including Dubai and Abu Dhabi.
On 20 April, Dinesh Trivedi, a member of the parliamentary standing committee and former railway minister, wrote a letter to the Prime Minister, opposing Jet Airways’ request, saying that allowing more seats to Abu Dhabi would affect Air India’s prospects and dash any plan to turn Indian airports into hubs for air travel, Mint reported on 22 April.
The Yechury panel has asked for a reconsideration of the agreement by the aviation ministry with Abu Dhabi and has sought the recall of grants given to Emirates in the past.
“The committee as well as CAG (in 2011) has already commented about lucrative routes of Air India generously given away to other foreign carriers on bilateral agreements resulting in huge national losses,” the panel said in its report. “It should not be repeated.”
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First Published: Tue, May 07 2013. 11 31 PM IST
More Topics: Jet Airways | Etihad | Abu Dhabi | Air India | Emirates |
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