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.