Interest conflict likely in Tata airline deals: Ajay Prasad

Cyrus Mistry has given wings to Ratan Tata's long standing dream. The Tata Group will launch an airline in partnership with Singapore Airlines. The deal is staring at a lot of ‘regulatory unknowns'. Ajay Prasad, former civil aviation secretary says there may be a case of a conflict of interest as both airlines will operate in the Indian market. However, he also feels that Subramanian Swamy’s claims on violation of FDI rules in greenfield investment may not apply here.

Also read: Tata-Singapore deal positive; regulator issues remain: Pros Below is the edited transcript of his interview to CNBC-TV18. Q: Do you see any regulatory challenges for the Tata-Singapore Airlines joint venture given the fact that the Tatas also hold a 30 percent stake in Air Asia India? Could that get in the way of an FIPB nod? A: As far as the Civil Aviation policy is concerned on foreign direct investment, it permits any airline to come in with 49 percent equity as long as the Indian entities have a majority share. So, that conforms to this. There is suppose there is a likelihood of a conflict of interest because both airlines will be operating in the Indian market – one as a low cost carrier and the other probably as a full service carrier. When they go the FIPB, some of these questions will have to clarified on how they intend to work out these arrangements. I am sure that they must have had some preliminary dialogue with Air Asia and with Singapore Airlines. They must be aware of this position and must have worked out some kind of a working arrangement the details of which we do not know as yet. Q: We also heard from Ajit Singh earlier today saying that the law is silent on multiple joint ventures. He also seemed to allude that Sebi and the Ministry of Corporate Affairs (MCA) will need to look at this deal. What will be the FIPB be looking at and will the Competition Commission of India (CCI) also come into play here? A: There is no problem strictly as far as the aviation sector policies and the laws are concerned. The problem may arise under the Companies Act and under the Competition Act. There some of these questions will have to be asked and resolved and. Tata Sons would have worked out some kind of an arrangement with their intended partners in these two ventures and they must be having an explanation for this. We are as yet not in a position to comment as to what exactly those arrangements will be, but they will be explaining this to the concerned authorities in future. Q: Subramanian Swamy has already dragged the AirAsia deal to court saying that it is a violation of the Foreign Direct Investment (FDI) rules as rules do not allow FDI into a greenfield airline. This will be the second proposal which will perhaps test the FDI regulation in that sense. Do you believe that there is any ground that Subramanian Swamy's argument will actually hold? A: Even when this first proposal came out, there was this debate that whether the policy relaxation which permitted 49 percent investment, does it pertain only to the existing players or new ventures can also be covered. After a lot of examination and the decision was that even the new ventures can be covered under this. It was in that context that the clearances for the AirAsia venture came through. Probably a challenge on this is not entirely sustainable, because the policy makes no mention anywhere of Greenfield etc. Even the new ventures and the existing ventures both can take benefit of this 49 percent investment opportunity.