Rivals gang up as AirAsia, Vistara face hurdles

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May 30, 2014 was an action packed day for the aviation sector in India. AirAsia India announced its launch, 22 days after getting the flying permit. Within hours, a three-page petition by Federation of Indian Airlines (FIA) against AirAsia landed at the desk of Civil Aviation Minister Ashok Gajapathi Raju, who was just four days into his new office. There was no price for guessing the content as the same contentions were raised earlier. The same day, Delhi High Court issued notice to the Centre seeking its response on a petition by FIA demanding cancellation of approvals given to a joint airline venture of Tata Sons and Singapore Airlines, later christened as ‘Vistara’. The stage was already set for a fierce bout with existing players on one side and the newbies on the other.

Only days before, the airlines like IndiGo, SpiceJet and others under the banner of FIA had approached Delhi High Court seeking cancellation of Air Operators Permit (AOP) granted to AirAsia but could not get any relief as the judges refused stay the decision of Directorate General of Civil Aviation (DGCA). The opposition against the new players did not start one fine morning. The fight started as soon as AirAsia along with its minor partners Tata Sons and Telestra applied for approvals. Tatas again faced the problem when they announced a joint venture with Singapore Airlines as minority partner.

Ironically, the first to raise the red flag was Civil Aviation Ministry. It felt a clearance by the Foreign Investment Promotion Board (FIPB) for AirAsia was against the FDI policy. Later it changed tracks and gave NOC for the venture, which pumped in USD 30 million into the market. But the rival airlines and BJP leader Subramanian Swamy were not to leave it at that. They alleged the FIPB approval was illegal and raising questions about “foreign” control over the airline. The airlines petitioned Supreme Court against the FIPB approval but were asked to approach the High Court, which constituted a special bench to look into their contentions.

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The September 2012 decision to allow foreign airlines to invest up to 49 per cent was greeted with much fanfare. The beleaguered operators felt that it opened door for investments, which would take them out of the financial crisis they were facing. The last thing they wanted was competition. But government had other plans and gave the green signal for foreign airlines to invest in new ventures. All hell broke loose. The airlines went to court.

Inside and outside courts, the FIA argued that the relaxation in FDI policy was mooted due to the dire financial needs of airlines, whose cumulative loss was Rs 77,000 crore, and that it was “clearly” in the context of existing operators. They felt the introduction of foreign airlines through new ventures defeated the very purpose of the policy. They also questioned the ownership pattern of these ventures, claiming the control was in foreign hands, a strict no according to rules. Finance and Commerce Ministries were adamant, saying FDI policy in general do not make a distinction between ‘brownfield’ and ‘greenfield’ for investment except for pharmaceuticals.

Both sides began hectic lobbying and there were hurdles for AirAsia and Vistara in getting approvals initially. The DGCA took its time on deciding the objections against AirAsia and Vistara. But when it made up its mind, the regulator emphatically rejected the contentions of FIA. Echoing government, the DGCA felt that there was a strong need for bringing “operational efficiency and expertise” in existing airlines to ease their financial hardships, which could be brought by stiff competition and improved work culture “that can only be provided by introduction of new entrants”.

Though the newbies got government and the regulator on its side, the battle was not over yet. The FIA moved court at every juncture – after the FIPB approval, the NOC and granting of AOP. On May 7, AirAsia India got the AOP, the final hurdle, with a rider that its validity depends on the outcome of Delhi High Court’s order on the petitions filed by FIA and Swamy. FIA rushed to the High Court against AOP but the judges refused to intervene saying the permission was conditional.

AirAsia pounced on the opportunity announcing the launch of its operations within three weeks of DGCA’s final nod, a move that took its rivals by surprise at a time the market was going through the lean season. Rivals alleged it was part of AirAsia’s strategy to present a “fait accompli” and create third party rights. Now Vistara is awaiting AOP to start its operations.

While the case is still pending in High Court, AirAsia and Vistara appear to be buoyed by government stand and articulate almost similar arguments. It is believed that the regulatory approvals were delayed due to hectic lobbying by rivals but the airlines hope that they would not have to shut shops with government needing foreign investment in the country. A final call will be made only when the High Court takes the final call in the pending petitions.

(The article appeared in Spotlight of Deccan Herald on Nov 16, 2014)

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