Lufthansa may face govt ire over AI’s failed Star Alliance bid

Lufthansa may face govt ire over AI’s failed Star Alliance bid

New Delhi: The government, upset by the rejection of Air India Ltd’s bid to become part of the Star Alliance grouping, may choose to take its ire out on Germany’s Deutsche Lufthansa AG, which has, in turn, expressed the concern that carriers from West Asia will gain market share at the expense of European ones.

The German carrier’s application to allow its jumbo Airbus SAS A380 to fly to India has not been cleared by the ministry since last year and continues to be held in abeyance, said a civil aviation ministry official who did not want to be identified, although it wasn’t clear whether this is related to the rejection of Air India’s bid.

Lufthansa, one of the lead carriers in the Frankfurt-head-quartered Star Alliance, was the designated mentor for Air India’s bid to join the club. Star Alliance said in August that Air India’s membership bid was being put on hold as it hadn’t met conditions.

“This is completely unacceptable," added the civil aviation ministry official, maintaining Air India’s position on its rejection as reported by Mint in a 2 August story. “Air India has met all the requirements and honoured all its agreements with the alliance."

A communication from Lufthansa that sought to explain Air India’s rejection has also raised hackles at the ministry.

“In spite of numerous attempts by Star Alliance (Services) GmbH and mentor Lufthansa to convince AI (Air India) of the necessity to fulfil all prerequisites and contractual obligations, AI unfortunately has not honoured its contractual commitments as set forth in the conditional agreement to the Star Alliance of 13 Dec 2007," Christoph Franz, chairman and chief executive officer (CEO) of Lufthansa, said in a letter to civil aviation minister Vayalar Ravi last month that was reviewed by Mint.

A Lufthansa spokesperson declined comment on the letter on the grounds that it was confidential.

The aviation ministry plans to take steps through direct and diplomatic channels to communicate its views to Lufthansa and Star Alliance, said the ministry official. “The claims made by Star are a way of misleading the ministry with the intention of not having to pay back the joining fees and any damages that AI would like to seek for expenses incurred in meeting the Star requirements and for loss of image," he said.

Air India has paid a total €10 million (Rs 65 crore today) since May 2008 as part of joining fees. It terminated relationships with Air France and Royal Jordanian, besides refraining from signing any new code share agreements with other airlines as part of the process.

An Air India official close to the developments on the issue said key questions weren’t being asked by the government.

“I see nobody from the ministry or the airline asking the basic question: Which of the minimum joining requirements have not been met? Please specify. You can’t hang someone without telling him the charge," this official said, asking not to be identified.

Star Alliance spokesman Markus Ruediger said the stand on the membership remains unchanged. He declined to specify which requirements Air India did not comply with.

Not unnaturally, there isn’t much sympathy on the part of the government for Franz’s view that West Asian airlines will benefit from Air India’s membership rejection. He also indicated that Air India may have missed the bus on joining the alliance in the foreseeable future, although the tone of the letter appears to be sympathetic to Air India’s plight. “I am very disappointed about this unfortunate development. This unsatisfactory outcome is indeed a setback for Air India as well as for AI’s mentor Lufthansa," Franz said in the letter. “We have missed a great chance to exploit synergies and to strengthen the competitive position of Air India and Star Alliance in the marketplace."

Air India has categorically denied the contention that it couldn’t meet the conditions, citing letters written by Star Alliance to the carrier that show otherwise, as Mint reported in the 2 August story.

The entry of Air India into Star Alliance was seen by European carriers as a way of leveraging its network and reducing the growing market share of West Asian carriers, including Emirates, Qatar Airways, Etihad Airways, Air Arabia and FlyDubai, in the fast-growing Indian air travel market.

In his letter to Ravi, Franz raised the concern that West Asian carriers will now make a dent in the market for flights to the US, having made gains in the India-Europe market.

“The members of the Star Alliance family continue to be deeply concerned about the ever-increasing competitive threat posed by the Gulf carriers," he said. “They had hoped that India’s worldwide air transportation network could have been improved considerably by the alliance... The Gulf carriers have been able to exploit this development at their benefit."

The CEO expects this process to escalate. “Emirates has become the leading carrier in air passenger transportation between India and Europe and vice-versa—neither Air India nor Lufthansa," he said. “Sooner or later the same will be the case between India and North America."

A former Air India official said the government felt betrayed over the Star rejection.

“In the wake of the membership invitation to Air India, Lufthansa had been given numerous benefits by way of enhanced frequencies to Mumbai and Delhi, and permission to fly to other points in India," said Jitender Bhargava, former executive director of Air India who was closely associated with the process until his retirement last year. “It will be only legitimate for the government to withdraw some of these benefits," he said.