Monday, April 22, 2013

Of `Over Generous' airline deals


India's civil aviation ministry, has suddenly landed itself in the spotlight over what experts and politicians call “over-generous" aviation deals which threaten to take Indian passengers away from the country’s much touted aviation hubs - Delhi, Mumbai and Calcutta and turning India's airlines into ‘feeder services’ to rival hubs in Dubai, Abu-Dhabi and Southeast Asia.

In a letter written to the prime minister on Saturday, Dinesh Trivedi, former Minister of state and MP,  has warned " The creation of Emirate’s specific capacity entitlements, coupled with unbridled access to all major cities in India for the airlines of the UAE, has already resulted in Dubai establishing itself as the primary hub for Indian traffic ...Now, Abu Dhabi is also keen to emulate the success of Dubai and Emirates Airline, and is keen to establish Abu Dhabi as another hub airport on the back of Etihad Airways, and for this reason is aggressively seeking an increase in capacity entitlements."



Delhi - India's wannabe global hub
What sparked the protests was the Naresh Goyal led airline Jet Airways'
demand of the government  for an increase in air traffic rights between India and Abu Dhabi by three-folds to 41,000 seats a week from a current 13,000 seats a week and permission to operate  flights to the Emirate from 23 Indian cities. This happened even as it is working to finalise a stake sale deal with Abu Dhabi based Etihad.

India routinely holds bilateral talks with various countries to review its need to increase flights abroad. However, strangely, in the case of United Arab Emirates, a tiny Arab country hugging the mouth of the Persian Gulf, India has strangely held separate talks with each of the seven Emirates - Dubai, Sharjah, Abu Dhabi, Ras Al Khaimah etc., - which make up the nation of 7.9 million people. The separate bilateral talks with each emirate, which are nothing but single cities or clusters of villages, is akin to talking to each city or shire in Ireland!  

Analysts argue that Abu Dhabi is simply not big enough to justify 41,000 weekly or over 2 million annual flyers to that desert town and allege that if the ministry gives its nod to this demand, the Arab airport could well take India’s traffic on to North America, Europe, Africa and the Middle East and back as Dubai is doing.

Already, they point out, that thanks to  bad management of bilaterals by the Indian government, Emirates flew more international travellers in and out of India than any Indian airline 2011-12, according to official data.

While the Dubai based airline cornered 13 percent of the total market share of India, flying 4.5 million passengers in and out of the country in 2011-12, Air India and its subsidiary Air India Express jointly carried 4.1 million passengers or 12  percent. Indians make up a fifth of Dubai’s transit crowd.

Trivedi, who has been on the Parliamentary Committee on Civil Aviation for nearly a decade, alleges "already Emirates Airline is being called the “national airline” of India, as it operates more flights and carries more passengers to/from India than Air India, our national carrier. More than 70 per cent of the passengers carried by Emirates Airlines however travel to points beyond Dubai, on Emirates’ network." 

"Already, India is struggling to create a world class hub at Delhi, faced as it is with competition from airports like Dubai and Doha in the Gulf and Bangkok, Hong Kong and Singapore in South East Asia ... Allowing Abu Dhabi to come up as another hub which is only about three hours flight away from the major Indian metros will kill all aspirations that we may nurture as a nation, to establish a world class hub," points out Trivedi.

Experts say the establishment of hubs needs time and nurturing. It also requires home carriers with a critical size to be able to support the hub to blossom. Till now no global Indian carrier was flying out of Delhi as a hub. Air India has recently started doing that, but without sufficient critical number of flights to foreign destinations. Jet is more focussed on flying within the country and uses Brussels as a hub for flights to Europe and the US. Indigo and SpiceJet are still in their infancy as international carriers, thanks to a policy which does not allow Indian carriers to fly abroad till they have flown for 5 years within the country while allowing foreign carriers to fly into India from the day they are registered. 

That takes us to another question. What policies besides not giving away huge bilateral flight rights to privileged tiny nation states, can help Indian cities become global hubs?

India is a natural, hub for the region – not just South Asia but also much of Central Asia and South East Asia as they link up with each other. It simply needs to facilitate it. Flights connecting more East Asian and South East Asian cities, more of Europe and direct flights to US cities would help.
India is a natural regional hub
 

The rather ill-logical policy of not letting Indian carriers fly abroad till they have flown for five years here, should be scrapped. Since we anyway allow new start up foreign airlines to fly to India, one sees no reason why we should not let Indian entrepreneurs emulate Gulf Air or Air Asia’s model of focussing on the foreign market rather than on the domestic one. It will simply bring in more competition not only to the old dowdy state run carrier Air India but to newbies like Emirates, Etihad or Singapore Airlines which seem to be taking more air traffic out of India than our own airlines.

Relaxed and cheap transit visas would also be a great help. Travellers from Afghanistan, Bangladesh, Sri Lanka, Maldives, Myanmar, Iran, Central Asian republics who have valid travel visas and tickets to Australia, Japan, Europe (Shengen), UK and the US, should be given at least a three day transit visa in any Indian city. The move will surely funnel a lot of traffic through India and add to tourist spending.   

Usually these developed countries have a very rigorous visa regime, weeding out most undesirables, India can just cross check the names against any master roll of unwanted people that it has and issue transits on the spot. This is a policy which both Malaysia ad Singapore follows and profits from.

A policy of encouraging reasonably priced, neat and clean hotels near the airport and not just five star properties, besides shopping malls and hospitals in the area would certainly add to India’s potential as a hub.

However, to get all these things through, India as a nation and the Indian government as an organisation has to give up its muddled and often compartmentalised thinking on tourism and aviation issues and take a leaf out of its competitors books, in its bid to shine and win.

Postscript :
On Wednesday, April 24, India did sign the deal which Trivedi and others were protesting allowing  Abu Dhabi the rights to fly in and out 1.9 million out of India ... when the total number of airline passengers in and out the country is just 2.8 million ! : http://www.telegraphindia.com/1130426/jsp/business/story_16829390.jsp

Friday, April 5, 2013

The Elephant, The Dragon and the Beehive Theory


 


Rahul Gandhi at CII : India is a beehive


 

Which is stronger – a dragon, a beehive or an elephant?

Answer – they are not comparable.

Congress leader and possible prime ministerial candidate Rahul Gandhi in his first address to captains of Indian industry, stressed the need to decentralise the Indian power structure in the manner of a `beehive’ to cut through red tape to make `doing business’ easier.

His favourite description of India, of course, is the beehive and not the usual lumbering elephant that most writers and thinkers associate with India. No would he like to think of it as the dragon which symbolises India's northern neighbour China, and Gandhi does believe the three symbols can’t be compared.

Wisecracks about India being a beehive with his mother as Queen bee and everyone else as drones apart, Rahul may have a point. India is teeming with a creative if chaotic society, which encourages thought cross currents and does not shut out dissent, the way regimented societies like China does.

Elephant Vs the Dragon

The India-China debate is old, almost as old as the emergence of the two nations as independent countries in the late 1940s. And much of what he said at a meeting organised by the business chamber – Confederation of Indian Industry – has been heard before. However, he is a young leader, who should be heard, if only to find out whether he is different.

The difference between the two rising Asian economies, according to Gandhi, lies in how the two view power. "China applies power by hand - they are a manufacturing behemoth. India on the other hand applies people's power - the power of the mind."

Gandhi emphasised India needs to continue developing the infrastructure needed to unleash India’s “soft power” – both in terms of roads, ports, electricity, etc., as well as in terms of revolutionising education and linking academic research with industry.

Now that’s a good and popular way of putting it across, even if it’s slightly clich├ęd. But the fact remains that China has become a super-power and India is still a wannabe power. And the transformation has happened during the last three decades. Nine years of that period, saw India being ruled by his father and grandmother. Five years by another Congress leader trained by his grandmother. Another nine years by a man handpicked by his mother for the job. Someone needs to do some more explaining than the play-acting Rahul did with industrialist Ajay Shriram to explain why India’s `soft power' has not been able to keep pace with China’s `hard power'.
 
The Beehive Theory
On the other hand,  Gandhi’s  complaint that unlike a "beehive which gives every member a voice", the system in India is "clogged" and voices of many at the bottom of the pyramid are not heard, is partially true. Despite boasting of a free press and the longest running democracy in Asia, marginalisation of the poor and unheard, were and are certainly the causes for the small and large rebellions India has witnessed over the decades.

That the ‘unclogging’ of the system is happening is apparent - the number of rebellions has come down – but the few remaining ones ( and they are big ones – a Maoist rebellion in central India and an ongoing disturbance in Kashmir)  are signs  that much more needs to be done.

Gandhi of course, led his `beehive’ allegory onto a subject which was a favourite with his late father prime minister Rajiv Gandhi – decentralisation to the district and village level. The desire to decentralise may not be purely altruistic.

The Congress rule in the centre in Rajiv’s time and now, was and is being increasingly challenged at every stage by states ruled by different ideologies. This is why the Congress party wants to cut past state governments and link up straight with district level governments.

In Jawaharlal Nehru’s time, dealing with provinces was not a problem. Ideologically they were one with him. They were all ruled by Congress party bosses. The chief ministers were strong men – Dr B.C.Roy in West Bengal, K Kamaraj in Madras, Govind Bhallab Pant in Uttar Pradesh – but they were all Congressmen and consultations that the prime minister used to carry out with them on economy, polity or foreign policy were more in a closeted club-like culture.

Mrs Gandhi solved the consultation problem, by simply ignoring state governments. Her force of personality and the fact that she picked up issues which were popular with the masses, meant the states squirmed when their rights were trampled on but did not have the ability to oppose her policies.

Take the example of coal and steel freight equalisation – it hurt Eastern states the most – West Bengal, Bihar and Orissa saw de-industrialisation as a result of this mis-thought policy. But no chief minister dared oppose it as the entire deal came shrink wrapped in Socialist rhetoric which talked about bringing the benefits of industrialisation to backward regions.

In reality, nothing of that sort happened. The policy which had the central government subsidising freight cars carrying steel and coal so that they could be sold at the same price anywhere in the country, helped some moneybags in Bombay make a killing at the expense of mineral rich Eastern India. The poor states remained poor.  

Mrs G got away with it. However, that kind of a deal is no longer possible. When the Dr Manmohan Singh wanted to play down the Sri Lankan Tamil issue at the UN, his DMK `friends’ and his AIADMK `former friends’ just didn’t let him have his way.  When he wanted to gift industrialists like the Ambanis, Adanis and Tatas with a subsidy on  costly imported coal to fire their new electricity plants, by raising the price of locally mined coal which feed ageing state electricity board run electricity plants, states raised a stink, forcing the `good doctor' to backtrack.

No wonder, Rahul called for decentralisation of the beehive, and described that as the panacea for India. The Queen Bee needs to connect with the drones minus the doubting chief ministers in between.

Tuesday, April 2, 2013

Tata Airline - fasten seat belts for turbulent weather


 
When the Cyrus Mistry-led Tata group unveiled plans last month to join hands with Malaysia’s low cost airline Air Asia to make yet another bid to enter the airline sector, the lobbying  war which had put paid to Mistry’s predecessor Ratan Tata’s plans to float an airline in the 1990s, erupted all over again.
A flyer from the original Tata airline

It seemed, Mistry had managed to inherit Tata's rivals along with his $ 100 billion-a –year-turnover tea-to-steel-to-cars-to-software empire. If Ratan Tata was truly mauled at any stage in his career as head of the house of Tatas, it was when he tried in 1997 to form a joint venture Indian carrier in collaboration with Singapore Airlines.

The then civil aviation secretary M.K.Kaw claimed in his memoirs  "An Outsider Everywhere - Revelations by an Insider", that lobbying by Jet on airline FDI rules stymied efforts to set up the Tata-SIA airline.

"The history of civil aviation in this country would have taken a different trajectory, if Tata Singapore Airlines had been allowed to float an airline," wrote Kaw.  "The minister (C.M.Ibrahim) did not clear the file, despite several attempts on my part."

In the early 1990s, when private airlines were allowed to be set up in India,  Jet Airways had started with two Gulf-based airlines – Kuwait Airways and Gulf Air – holding 40 per cent equity in the Indian carrier, between them. 

However, when the Tata’s mooted a proposal to set up an airline with just that – 40 per cent stake to be owned by Singapore Airlines -  rules were changed – thwarting the Tata group’s ambitions to get back into a business, with which it had an `emotional’ connect.

Wrote Kaw : "The Tatas had mooted a proposal for a private airline with 40 per cent equity contribution from Singapore Airlines. As this would have been a formidable competitor, Jet tried hard to upset the rules regarding foreign equity contribution … One of the last decisions taken by the outgoing Deve Gowda government had been to disallow such contribution in new proposals. This would block the Tata proposal effectively. Jet was given a time of six months to buy back the equity from its foreign contributors."

A route map of JRD's airline
For the Tatas, a return to aviation, kind of marks a return to their roots. JRD Tata, Ratan’s predecessor had formed the first airline in India, Tata Airlines, which later became Air India. Newly independent India with Nehru’s fabian socialism as its guiding ideology, nationalised the airline in 1953, but asked Tata to continue to run it for the country as chairman.

This strange saga of a state-controlled airline being run by a business tycoon continued till 1978, when in another unexplained `Socialistic’  move, the Janata Dal government of Morarji Desai unceremoniously eased out Tata from this job.  Mrs Indira Gandhi, when she came back to power in 1980, asked Tata to again take over as chairman of Air India, but by then Jehangir Ratanji Dadabhoy Tata no longer had his heart in that job.

So when Mistry decided to try again in 2013, some 60 years after the Tatas’ lost the airline to the government, and a dozen years after Ratan Tata’s bid had come a cropper, everyone sat up to see which way the wind would blow.  

True enough, battle lines were soon drawn over the proposed airline in the corridors of power.  In the run up to the Tatas being allowed an in-principle clearance to set up the airline, it almost seemed that North Block, home to the finance ministry and Rajiv Gandhi Bhawan, home to the civil aviation ministry, were not part of the same government ! 

While North Block, presided over by finance minister P.Chidambaram, eagerly welcomed the plan, which could bring much needed foreign exchange. In sharp contrast, the civil aviation minister Ajit Singh-led Rajiv Gandhi Bhawan fought it tooth and nail, every time and every place, the move came up for discussion or approval.

The civil aviation ministry’s first line of defence were the wordings of Press Note 6 which allows foreign investment in airlines. Its officials initially said the wordings did not allow the investment as neither of Air Asia’s Indian partners had any experience in aviation.

When this was discounted by pointing out that most airlines were launched by business groups which had never ever flown aircraft before, it came up with an interpretation that foreign airlines were allowed to invest in existing airlines and not new ones. Civil Aviation Minister Ajit Singh reportedly told reporters “I am not opposed to the (Tata-Air Asia) alliance… The idea of the policy was to increase investment in Indian carriers. It would have been nice had the Tatas, with their kind of resources, started a new airline.”


Mistry with Ratan Tata
At a dinner held soon after this year's budget was presented, North Block officials revealed that they had to argue incessantly to explain that the intent of the cabinet in September 2012 when it allowed foreign airlines to invest in India’s domestic carriers was not to limit them to buying financially sick airlines that dotted Indian skies. “We told them not everyone wants to buy sick airlines … nor was selling sick airlines our sole reason for changing the FDI rules,” top officials told journalists.

Ultimately, an ingenious interpretation of  a comma used in the Press Note was used to convince the civil aviation ministry that their understanding of the rules was incorrect. The civil aviation ministry proved to be a bad loser. Officials again told reporters that they had doubts about whether the `No Objection Certificate’ needed by the new entity to start operations could be given under current rules.

Other voiced objections to any future plans the Tata-Air Asia airline might come up with to buy “too many” new aircraft or to start “price wars which could bleed the already loss-making sector.” Ominously, the ministry disbanded an aircraft acquisition committee which had at least one independent member,  the chairman of Airports Authority of India and the financial advisor of the ministry,  besides ministry officials last week. New aircraft purchases will be cleared by the DGCA, a bureaucrat reporting to the ministry.

Was this a re-run of the lobbying war that had scuttled Ratan Tata’s plans? Many believe this was. Will Tatas’ manage to have better luck this time round? One hopes they will, but then only the future will reveal whether Mistry will be luckier than Ratan Tata.