Friday, April 26, 2013

Jet-Etihad deal at Air India's expense?

Etihad's acquiring a stake in Jet Airways is intended to improve the balance sheet of Jet, which, like most airlines in India, has been incurring losses. For a variety of reasons, the Indian aviation sector is in the doldrums.  It is understood that infusion of cash is a condition for recovery. In the case of Air India, the government is footing the bill. For private carriers, there seems little alternative to FDI.

Fair enough. However, as former ED of Air India Jitender Bhargava argues in a hard-hitting article in BS, the Jet- Etihad deal appears to have come at the expense of Air India:
Though there was unanimity that the two airlines would stand to benefit enormously, the bitterness came owing to the sweetener added by the ministry of civil aviation by way of granting over 40,000 additional seats per week on the India-Abu Dhabi sector over a three-year period. These seats were given away at a time when India was witnessing negative growth. Where was the need for additional capacity?
This has led to a question: was the grant of additional seats factored in for Jet Airways to obtain a higher valuation compared to what was being discussed in January 2013? Given that the two announcements - stake sale and grant of additional seats - came within hours of each other, was an assurance on additional seats demanded by the airlines and given by the government before the pronouncement of stake sale? These are serious questions because, if the link can be established, it is not only akin to insider trading but also demonstrates how decisions can be forced out of the government by powerful individuals.
These are very serious questions. Perhaps, we need the CAG to look into this while auditing the ministry of civil aviation? While Jet gains from the largesse, Air India is the loser. Bhargava adds with biting sarcasm:

With the survival of Air India made still more difficult, let us welcome Jet Airways as the national carrier because it enjoys the patronage of the Government of India and has been given a head start!

1 comment:

Anonymous said...

I like it.....Etihad is the new national carrier of India