Business: Aviation: Tata Airlines; Jettisoned for Nothing

The Tatas call it quits, blaming the delays and a partisan policy, but the Government says it's still open for business.

The sound of this parting shot will ring true for a long time. Last week, the Tatas formally pulled out of their Rs 1,475 crore domestic airline project, three years, four governments, three policy changes, numerous official postponements, and the announcement of a committee to study the proposal later. But the way they did it will probably go down in Indian corporate history as one of the most strongly worded letters of regret.

"Ministry of Civil Aviation (MCA) has chosen not to implement the Government's stated aviation policy," says a letter by Sujit Gupta, director of Tata Industries Limited, to Civil Aviation Secretary P.V. Jayakrishnan. "Considering the course of events, this company concludes that the MCA does not intend to allow competition or attract investment in the civil aviation sector even at the cost of the interests of the travelling public."

The six-page letter delivered on September 1 pulled few punches, unlike the Tata tradition of papering over a grouse with punctilio. On the same day, another letter with a copy of the first one was sent to T.R. Prasad, chairman of the Foreign Investment Promotion Board (FIPB), thanking him and his colleagues -- copies were also sent to the finance, commerce and revenue secretaries -- for their "objectivity and support". The FIPB had cleared the proposal for the project thrice over, which means nothing without a No Objection Certificate from the MCA.

In the missive -- missile? -- there is also the first but oblique reference to Jet Airways in an official communication to the Government. "The ministry, however, has considered it necessary to determine the source of 100% NRI funds for a private airline presently operating in India, which is owned by a company registered in the Isle of Man."

Gupta openly talks about Jet Airways, presently India's largest private airline, being the "one reason" behind the stall. "The allegations are untrue," counters Naresh Kumar Goyal, Jet's chairman. Whatever the truth, such talk finds credence when looking at Goyal's heavy-duty political links. BJP leader Pramod Mahajan is counted among friends, his son works as a pilot with Jet and Civil Aviation Minister Ananth Kumar is a Mahajan prot g . Former civil aviation minister C.M. Ibrahim twice blocked the Tata airline, despite public noises of approval by two prime ministers, H.D. Deve Gowda and later I.K. Gujral. P.V. Narasimha Rao invited the Tata Group to form an airline, but his civil aviation minister Ghulam Nabi Azad blocked Tata on grounds of inadequate airport space and infrastructure while permitting Jet and Modiluft -- now bankrupt -- to expand despite neither having any service infrastructure. Azad was then a close ally of Sharad Pawar, also a close acquaintance of Goyal.

The Tata Industries reference is to the company that is the sole owner of Jet Airways, Tail Winds, incorporated in the tax haven of Isle of Man, owned by Naresh Kumar Goyal, "persons of Indian nationality and/or origin", as the Certified Public Accountants Certificate submitted to the MCA by Jet Airways states. A letter from Jet also mentions "Tail Winds is a 100% NRI OCB (Overseas Corporate Body) and its substantial ownership and effective control is vested in Mr Naresh Goyal, NRI, a citizen of India." The point, as far as the Tata Group is concerned, is not that there is anything wrong with Jet's declaration, but the fact that the ministry, and its administrative arm, the Directorate-General of Civil Aviation, has not probed Jet with as much intensity as the Tata's airlines case. First, there was a question of Singapore Airlines being a direct equity partner in the project. When that guideline was changed in April 1997, preventing direct participation by foreign airlines, the Tata Group resubmitted the proposal last December, with two equity partners, American insurance heavy AIG and Singapore Government Investment Corporation, with Tata Industries retaining a controlling stake of 60 per cent. Jet too delinked its foreign equity partners because of the policy change effected by former civil aviation minister C.M. Ibrahim, when Kuwait Airways and Gulf Air sold off their stakes in Jet.

But while Jet's declaration of ownership and control by Goyal isn't being questioned, Tata has been specifically asked to submit -- and they have -- a declaration that both its partners had no interest in any airline, and details of their boards.

The grouse has heightened as another Tata-led aviation project, the Rs 2,700 crore new airport at Devanahalli near Bangalore, faced policy flimflamming for two years; the group, citing delays, unviability -- and amidst speculation that they wouldn't get the project because they wouldn't pay a kickback -- officially pulled out of the project last May. Former Karnataka industry minister R.V. Deshpande, who pushed hard for the project, says,"The problem with the Tatas is that they don't get into any other route to get their projects cleared. It's a shame that the Centre as well as the state ministers have shown such a lack of interest in enabling the project to take off." Chimes a top official of the Tata Board: "The moral of the story is that if we follow the guidelines, we are going to regret it."

Civil Aviation Minister Ananth Kumar dismisses such talk (see box) and maintains that Tata is not being singled out for slamming. On the other hand, tough-talking Minister of Industry Sikander Bakht -- like Murasoli Maran before him, a pro-open-skies policy man -- major chambers of commerce like the Confederation of Indian Industry and ASSOCHAM have come out openly against dilly-dallying by the Government, calling for direct intervention by Prime Minister Atal Bihari Vajpayee. The project isn't so much about foreign investment anymore. It's about not getting off the ground for no good reason beyond a block by vested interests after officially promoting a free-skies policy.

Meanwhile, Tata officials have practically carved the walks to as many offices as they could. And they have been met by equally strident opposition, from MPs -- including Ibrahim -- who urged Bakht in a letter not to clear the airline proposal in a squeezed market, to unions leaders of Indian Airlines who agitated against it, saying a new airline would eat into a declining marketshare. However, none of them criticised the expansion of any other private airline. "The open skies are not closed," insists Kumar. Going by what has happened, it sounds a little hollow.

HARD HITS

Tatas: "The Ministry of Civil Aviation has chosen not to implement the Government's stated aviation policy ..."

Kumar: "The Tata airline project has been through several governments, and the civil aviation policy has been changed twice. So the issue needed to be thoroughly examined. Foreign participation in domestic aviation is a sensitive issue."

Tatas: "...This company concludes that the Ministry of Civil Aviation does not intend to allow competition or attract investment in the civil aviation sector even at the cost of the interests of the travelling public."

Kumar: "Various sections of the (Indian Airlines) employees' unions expressed their concern over the entry but I have not heard of any pressure, even political pressure. We have not been biased or selective."

Tatas: "The ministry ... has not considered it necessary to determine the source of 100% nri funds for a private airline presently operating in India, which is owned by a company registered in the Isle of Man."

Kumar: "Our policy guidelines are very clear and we have been following only that."

Tatas: "... Tata Industries Ltd hereby withdraws its application for a domestic air transport service dated 26th December 1997."

Kumar: "We are still open minded about the projects, including the Devanahalli airport one. I don't feel anything has been scuttled. The Tata airline project is a complex issue and is still being examined by the Government of India and we are very open minded about it."