Aviation reviving, but KFA flight uncertain: Ajit Singh

Indian skies are looking bright again. And the man who is at the helm of aviation sector, Union minister of Aviation Ajit Singh, believes that lack of faith in this country was the biggest challenge so far.

In a freewheeling chat with CNBC-TV18, Singh said the perception is changing now and the biggest positives in the sector is marked by two landmarks  --- Tata -Singapore  Airlines and Jet Airways-Etihad deals.  If political will prevails then his ministry is ready to privatise Air India, but the company will not be infused with additional fund. Following Tata-SIA and Jet Etihad deals, Vijay Mallya had suggested he too was looking for a foreign investor to help Kingfisher Airlines fly again. But Singh says Kingfisher may find it tough to get an investor on board. Regarding the Air Asia approval, Singh said the delay occurred because names of office bearers were not given on time. Speaking on the outcome of next Lok Sabha elections, Singh said the voters are angry with political parties; under the circumstances, no political party or alliance will get absolute majority. Below is the verbatim transcript of his interview on CNBC-TV18 Q: Let me start by asking you about the Jet-Etihad deal because it has been through so many twists and turns, mired in so many controversies, was there a point where you thought that this deal will fall through because even as late or as recently as September 5, the Department of Economic Affairs had once again written to both companies stating 11 concerns that the government of India had with this deal, did you think that this deal would probably fall through? A: No, I always knew that it was good for civil aviation sector, it was good for the passengers and it is true that were lot of problems with the shareholder agreement and all that but that is why we, and the Foreign Investment Promotion Board (FIPB), Corporate Affairs Ministry, Civil Aviation Ministers are there. All those problems were resolved. So, I never thought it won’t happen because as I said it is good for the Indian civil aviation sector, good for the passengers and both the airlines. Q: Talking about the controversies surrounding the Jet-Etihad deal? The Prime Minister had to finally issue a clarification as far as the bilateral agreement is concerned. Let me ask you absolutely in a straight forward fashion without the bilateral agreement would the Jet-Etihad deal have gone through, without the bilateral agreement would the Jet-Etihad deal have been able to get the kind of valuations that Naresh Goyal managed to get? A: These valuations they had decided much earlier. I don’t know the internal story but if you read the newspapers, the valuations was done much earlier. They had been talking for six-eight months before this thing happened and if you read the papers – you all had said valuations would be around that figure which finally it was. So, I don’t know how that was tied with the bilateral. Q: There are very few coincidences in life and the fact of the matter is that the deal closure or at least the agreement between Jet and Etihad was done on exactly the same day that the government expressed its intent to go ahead and share the bilateral agreement with Abu Dhabi? A: It was up to the airline executive to sign the deal. The same guy there, if he wanted to sign the deal on the same day, there was nothing we could do. If that is the only complaint then I don’t think you have any complaint. The timing of that was not in our hands. One must also remember it was not only Jet but Kingfisher was also talking to them. Q: Kingfisher was talking to Etihad? A: Of course, Vijay Mallya announced that he is in talks with them and on his birthday, they will come and they will sign the deal. So it was the deal that was going on for long. This bilateral also, the request from Abu Dhabi had come in 2012 and then they repeated it in January of 2013. Air Services Agreements (ASA) under that these memorandum of understanding (MoUs) are signed, these are basically agreements between two countries. Q: However, it is a fact that the bilateral agreement did not accept the recommendation of the inter-ministerial group (IMG), in fact you decided to change what the IMG has proposed as far as the bilateral agreement is concerned? A: To repeat what I have said many times earlier - In this case, the Indian carriers asked for 55,000 seats and they asked for 40,000 seats but we gave them 36,000 over three years. If you go back into the bilaterals, when National Democratic Alliance (NDA) government was in power, they announced without IMG meeting that India was open sky for 18 countries; Asean and all those countries. Even before that, in 2000, in winter schedule, they made it open skies for four years; sometimes for two months, sometimes for three months and lakhs of seats were used by the foreign carriers. All these deals were always opposed by Air India and Indian Airlines, they were two different airlines then, and the Directorate General of the Civil Aviation (DGCA). In many cases, IMG was not held, IMG just recommends. It is an agreement between two countries, so we have to look at the sector which in this case is civil aviation, we have to see what kind of relationship we have with that country, how it will affect the relationship, what are the security concerns, how it will affect the trade and investment - all these things. Q: So on that basis, the decision was taken by the cabinet, keeping the prime minister’s office in the loop, keeping prime minister in the loop that it was better to not go with the IMG recommendation and sign the bilateral agreement as was being proposed by the civil aviation ministry? A: As I said, GoM was set up and PM was of course consulted and as I said there are many other factors besides this factor for which we are signing this deal like trade and investment, relationship with that country. Q: So, does it have to do with the fact that we have seen apprehensions being expressed by UAE on account of what had happened in the 2G scam with the likes of Etisalat etc being “treated unfairly”? A: That is not an issue. Abu Dhabi is the richest emirate, it is the capital also, and the Emir of Abu Dhabi is the president of UAE also. We have given 54,000 seats in all to Emirates, Dubai, around 16,000-18,000 seats to Sharjah and Ras Al Khaimah also had some seats. However, by that time Kingfisher was but international passenger growth was there whereas domestic was going down, tapering down, so you had to sign bilateral with someone just to cater to those passengers. _PAGEBREAK_ Q: Lot of people have written letters including the former finance ministers, Jaswant Singh, Gurudas Dasgupta, Subramanian Swamy has of course taken this matter to court as well, we don’t know whether the court will admit his plea or not but that is a separate story altogether, was their intense corporate lobbying as well opposing the Jet-Etihad transaction? A: This business is a very thin margin business. If you look at the 40 year’s history and take all the airlines and their profits; net profit is zero. So, if they can prevent some other their airlines coming  in or if the Kingfisher like situation develops and some other airline goes down, commercially it is good for them. Q: There was corporate lobbying against this transaction? A: This has been history also in civil aviation sector. In fact if you go back when foreign direct investment (FDI) was being allowed, every newspaper said it was for Kingfisher and Mr Goyal was opposed to it and then now he is the first one to get it. So, it all depends on the market situation, commercial considerations and at what particular time, what suit some airline, they will go by that. However, we have to look at overall things; passenger interest etc. Passengers would have been in a lot of trouble if that bilateral wasn’t signed. Remember one more thing, earlier we gave 54,000 seats to Emirates, Indian airlines had asked less number than what was given. Here we have given less than what Indian airlines asked for. Also the change of gauge facility, which means from many small cities passengers can go to Abu Dhabi, consolidated in one big plane and go anywhere in the world. So it has increased the connectivity also. Q: Let me move away from Jet-Etihad and you keep talking about Kingfisher, we have heard from Vijay Mallya over the last two weeks saying that over the next 90 days he expects to get a foreign investor on board, do you believe that there is a possibility of a revival, there is a possibility of a foreign investor coming around on board, has Vijay Mallya said anything about anything to your notice or you attention? A: No, he has not been in touch for quite some time now. Given the situation that banks are suing him, the government is suing him for the taxes, and also airport authority is suing him - he has a very difficult job of getting some investor come in. Q: Do you believe Kingfisher airlines will fly again? A: Anything can happen but at this point in time, it is going to be difficult for any investor to come and bail out Vijay Mallya. Q: I know that the government cannot intervene, it is a private airline, it is a private company but could the government not have done more for the sake of the employees who have not been paid for over a year now and we have actually not seen any substantial action being taken against him? A: Action can be taken only according to laws. It is a private corporation. Q: You said that the labour ministry can look into the matter of employees? A: That is what I am saying; you have to go only according to the laws. You don’t want government to arbitrarily interfere in any private company’s affairs. They would have gone to the court anyway now that banks are trying; they have to go to the court. The air planes which he had on lease that matter is also in the court. Overall, a lot of opinion at that time was that we should look at the economic situation of the aviation companies also. So, we are setting up a cell in the ministry now, which will study that because in this business you require very deep pockets. Q: Speaking of deep pockets, let me talk to you about the two new deals and the two new greenfields airlines that we are going to see, AirAsia-Tatas and of course AirAsia-Singapore airlines full service carrier. As far as Air Asia-Tatas are concerned, there is pending approval from the DGCA and then they should be ready to go. Tata-SIA, how long do you think the process of granting approvals will take? A: Like Tata-AirAsia, AirAsia also basically whatever delay happened was because they didn’t give all the names of their office bearers – the chairman and directors at one time because they all need security clearance. So, as soon as we received the security clearance, I don’t think we took more than two weeks or so.  In case of Tata-Singapore also it depends when they give their names. Q: You had a meeting with the Tatas, have they given you their rationale for why they want to rekindle their love affair with aviation because it is not just airlines. They are also looking at airport development; they must have given you their strategic rationale for why they suddenly find this sector so attractive again? A: It is not for me to question Tatas on their passion for flying. As far as reason is concerned, everyone knows that Indian civil aviation has a very bright future. We are going through a lot of problems but anybody who is coming is taking a long-term view. Q: As far as the greenfield airline issue is concerned, and that again is mired in controversy courtesy Subramanian Swamy has taken the matter to court, I know the civil aviation ministry along with the commerce ministry and the DIPP have stated that as per the FDI policy, investment into a greenfield carrier is allowed. Are you worried at all that the court could perhaps take a different view on this matter? A: I cannot say what view court will take and whatever court says we have to abide by that ultimately. Q: But do you believe that you have a strong case as far as FDI policy is concerned? A: That is what the collective view was that the decision applies both to the brownfield and the greenfield civil aviation companies. Q: Do you believe that you are likely to see more greenfield carriers and more foreign investment into greenfield carriers, have you heard from anybody else who seems to be interested in the second phase? Civil aviation is becoming the attractive sector for foreign investors. A: If you look at it, you have three international airlines earlier. I am not counting aviation companies flying to gulf countries or Myanmar or some place they were Kingfisher, Air India and Jet - all three of them were in financial problems, which was much more than distress. However, if Tata-Singapore comes; Singapore Airline is one of the best airlines in the world. Etihad also has lot of connectivity and everything. So, I think the overall situation has changed. As I said always everyone knew that long-term future is good in this industry but there was a lack of interest because lack of faith. _PAGEBREAK_ Q: Lack of faith and also constant changes as far as the regulatory policy was concerned - this business of Airport Development Fee (ADF), User Development Fee (UDF), how much ADF, how much UDF and that controversy continues, it hasn’t been settled has it? A: First thing you have to realise is that why all these airlines have come is because they have regained the confidence in Indian civil aviation sector and the regulatory regime because otherwise nothing has changed. ADF, UDF that you are talking about is connected to airport. The regulatory authorities here now has been there for last few years only. It is all prescribed how they will go about it, what their mandate is and everything. So there is no arbitrariness in that anymore. Q: Speaking of further liberalisation and further changes as far as the regulations are concerned - there has been a lot of speculation on whether you will relax the guidelines as far as international flying is concerned. Do away with that five-year, 20-aircraft current rule, are you likely to press ahead with that? A: Even I don’t know what the rationale was behind that policy to begin with. It was manipulated because we have countries coming here, flying to our country with one, two, three planes. We have individuals flying out from India with one plane. So, how is that different from scheduled airline flying a plane outside because DGCA still examines the airworthiness, the safety aspects are same whether it is an individual or airline. Q: How soon will you move the cabinet to amend this regulation because this would I imagine will be a big driver for some of the airlines Tata-SIA for instance? A: It shouldn’t take too much time. Q: So you are going to move cabinet and have this rule amended? A: Yes. Q: So you will do away with any time period of any cap as far as that class is concerned? A: That we will consult with DGCA and everyone but I don’t think there is any logic behind these time limits and number of planes. Q: So, no time limit is what you intend to propose? A: That I can say as I said we will have to consult DGCA, these are technical things. If they say no, we want to have that airworthiness of a plane flying abroad, check it for two years or one year or something, I don’t see why, but still we have to consult. Q: So it is certainly not going to be five, it could perhaps be anywhere between two and three or maybe nothing at all? A: It is better not to speculate. Q: How soon will you move the cabinet note? A: It doesn’t have that urgency in anyway. But in next few months – let me put it that way. Q: Besides airlines, let me talk to you about airports because that is the other big area of interest and you have spoken about it and the cabinet has expressed its intent to go ahead and fast track this process of giving up the bids. I understand that now the government may in fact relax the past experience criteria as far as airport developers are concerned -the likes of Tata have expressed the keenness to get into airport development, would you like to do away with the past experience clause? A: I don’t know if there is a past experience clause there because they are basically consortiums and hardly anyone has bid, only one company has bid and I am sure some of those consortium members have the experience. I haven’t looked at the details of that. Q: How soon do you believe that we are going to be able to have the bids etc in place as far as the new airports are concerned? A: Request for qualifications (RFQs) have already been issued. We are working on the request for proposal (RFP) and the concession agreements. It is very time consuming and extensive consultations have to take place. Let us see how fast we can go. Q: Any other foreign investors looking at existing airlines, there is SpiceJet, IndiGo of course they  have said that they are not interested in bringing FDI, GoAir we understand is also on the look out, has the ministry heard anything? A: IndiGo already has 49 percent foreign investment. SpiceJet and GoAir I keep reading in the paper that they are looking for partners. Q: You haven’t heard anything about who those potential partners could be? A: No.