Bilateral agreements were fundamental to the Jet-Etihad deal, Kapil Kaul, CEO- South-Asian region, Centre For Asia Pacific Aviation (CAPA) told CNBC-TV18.
"The government of India did a u-turn in hiking bilateral rights to Middle-East carriers and the Bilateral Investment Promotion and Protection Agreement (BIPA) was never considered to be a deterrent to the Jet-Etihad deal," he adds.
Kapil Kaul expects continued pressure from Emirates for 50,000 seats. He also expects Qatar and Singapore Airlines seeking enhanced bilateral rights. “Even European carriers will ask for increased bilateral rights and Jet-Etihad combined will want an additional 80,000 seats. “But bilaterals should not change competitive landscape."
Below is the edited transcript of the interview on CNBC-TV18
Q: Jet and Etihad announced their deal in the morning and in the evening the civil aviation ministry puts out a notification that a bilateral pact has been signed between United Arab Emirates (UAE) and India and that India has actually accepted to more than triple the number of seats on weekly flights between India and UAE. Does this raise eyebrows?
A: The bilateral agreements are fundamental to this deal. If the bilateral pacts were either delayed or not approved, the deal would not have happened. I am quite certain that valuation is largely a kind of premium and the final data was largely dependent on the bilateral pacts that were signed. If the bilateral pacts were not followed though, I don’t think it would make any sense for Etihad to invest in Jet Airways.
Q: Your statement is in concurrence with the widespread opinion that the 31.5-percent premium that Etihad is paying for Jet Airways takes into account the quadrupling or tripling of seats between India and the UAE. But What is wrong with enhancing bilateral rights?
A: Three months ago, the civil aviation minister had publicly stated that Middle-East carriers would get any traffic rights only if their Indian counterparts were allowed the same privileges. I don't know what happened in those three months for the government to make an about-turn and change its position on not giving bilateral privileges to Middle-East carriers. In fact, Etihad was never in the line for seeking enhanced bilateral agreements. The demand was primarily made by Qatar and Emirates. But this deal had changed the entire scenario.
Q: So is this in lieu of a possible BIPA?
A: I was certain that a BIPA would not be a deterrent to this deal. Eventually, a BIPA will be inked. As various countries invest in India, they increasingly seek protection of their investments. But this deal was not dependent on a BIPA being signed.
It was dependent on making sure that the bilateral agreements, other regulatory approvals and procedural issues would get sorted out quickly. A BIPA would be inked despite the deal going through. India will continue to receive investment in the future from the UAE..
Q: Who stands to lose the most?
A: Etihad and Jet will receive an equal number if additional seats as both have a common purpose of building traffic from India. So, it is quite significant. I am sure that there would be continued pressure for increased seats from Emirates, Qatar Airways, Air Arabia, Singapore Airlines and Cathay Pacific.
I am not sure how the European airlines would react but Turkish Airlines is looking for bilateral doubled dailies to Delhi, Mumbai and six other cities. I think this is more complex than what it seems and might open up an aero-political trade challenge for India.
Q: Where has the Indian government gone wrong in allocation of bilateral rights?
A: The argument of opening up of trade with bilateral pacts is a theoretical assumption. Bilateral pacts offer few tangible returns in terms of investment apart from the fact that they do generate some significant incremental benefits. I have always believed that the economy must be opened up with care and in a very calibrated manner.
Bilaterals are national assets essential to create an institutional framework which keeps the national interest in mind. So you need serious consultation beyond the framework that currently exits. CAPA has always been of the view that bilateral pacts are essential for an economy and cannot be treated in an ad hoc manner.
These are serious issues and I hope that in future we take cognisance of our national interest and make sure that we have a bilateral policy which is a national policy.