July 27, 1998

Tripped by politics, it's curtains for the airport and a stall for the airline.

By Sudeep Chakravarti

The story so far. Government meets company, floats the ideas of a new private airline and an airport. Company falls in love with both the ideas, and proposes. The government changes its mind again, and again. The company proposes again, and again.

For the Tata Group, it's hardly been a fairy tale with either its airline proposal or its airport project affected by intense lobbying and political wrangling almost from the very beginning. And in the past two weeks, it has simply fallen apart. A key clearance on foreign equity participation in Tata Airline Private Ltd, expected on July 11, was postponed to August 8, the date given by the Foreign Investment Promotion Board (FIPB). "There really wasn't any reason," complains Sujit Gupta, resident director with Tata Industries in Delhi.

The lobbyists' pitch had been rising since early June, when a group of 30 MPs from the Rajya Sabha petitioned industry minister Sikandar Bakht, urging him to direct the FIPB not to clear the project and asked that a detailed report on precise equity holding in the Tata airline be presented to Parliament. The group, along with a smattering of left MPs, includes former civil aviation minister C.M. Ibrahim -- an on-record opponent of the proposal when in office -- influential Samajwadi Party MP Amar Singh and former minister of state for civil aviation Jayanthi Natarajan, who has turned from active proponent to active critic.

If the Tatas have displayed persistence with the project, they seem to have run out of patience, and ammunition, with the other -- a proposed private international airport project near Bangalore. It planned investments of Rs 2,700 crore, led by a consortium of Tata Industries, Raytheon Corp of the US, and Changi Airports Authority, Singapore. The project has done little but limp since a memorandum of understanding (MOU) was signed with the Karnataka Government in December 1995. Then, Commerce Minister Ramakrishna Hegde dropped a bombshell of an accusation in June. It was all to do with a sum of Rs 50 crore, he said, which some members of the previous United Front government had asked for. Even now, if it was paid, the deal would go through. The allegation hasn't been denied or dismissed.

On behalf of the consortium, Group Chairman Ratan Tata wrote to Karnataka chief minister J.H. Patel on June 25 -- it became public only last week -- saying the project had lost its viability because of delays and change in the terms of reference. "I therefore cannot see ourselves having any option but to hold to our position conveyed in my earlier letter to you," went the letter, "namely, to withdraw from the project."

Patel, for his part, scrambled to control the damage, claiming he had "no knowledge" of the withdrawal, said he would talk to Tata, slammed bureaucrats who, he said, were constantly coming up with "ingenious objections" -- like security threats -- to delay the project. "If a person is harassed," Patel allowed, "naturally he will get fed up."

The project has been stalled by objections, among others, by Hindustan Aeronautics Ltd (HAL), which controls the present airport. Disputes ranged from sharing revenue to the Build-Operate-Own formula, which the ministry changed to Build-Operate-Transfer.

There was also a strong indication, as interpreted by the consortium, that they really had little chance of making it. HAL had changed its early '90s stance that it wanted the airport for its own exclusive use, which had prompted the official hunt for a second airport site in the first place; the MOU was signed assuming the new airport would handle all civilian traffic. Also, Minister for Civil Aviation Ananth Kumar had said last month that the present HAL-run airport would continue to be Bangalore's domestic airport, with upgraded facilities, and that HAL would operate it. "You can't have two airports for a city the size of Bangalore, even accounting for future traffic," stresses Eric Vas, manager (projects) with Tata Industries in Mumbai. "We, as a consortium, do not intend to review the decision."

The minister defends himself, saying policy is "all there, in black and white". Speaking to India Today a day before the airport pullout news became public, Kumar said his ministry had "put the Bangalore airport project back on the anvil" and was actually preparing for a set of meetings with defence authorities as well as the promoters. As for the airline, "there's no need for exhilaration or apprehension, it's under process. We are just concerned that a foreign airline should not enter surreptitiously".

So what's the truth? Black and white policy, or selective policy implementation with shades of grey? While writing off the airport project, Tata executives, naturally, say that one of the main reasons why their airline effort is going nowhere is because of staunch opposition from Jet Airways -- currently the largest airline in the private sector. Its well-connected chairman Naresh Goyal, an NRI, counts among his close acquaintances senior politicians like BJP leader and PMO fixture Pramod Mahajan and Congress leader Sharad Pawar.

The FIPB stalled the Rs 1,475.6 crore project, in which there is a foreign equity component of 40 per cent (see box), saying it needed a month more, and observers say the word to defray came from the PMO. The word is that a pro-project lobby is reportedly saying it should get a green signal because it fulfils all criteria. The anti-project lobby is using the excuse of a depressed aviation market to protect Indian Airlines (IA). But even senior IA officials say it's primarily a case of pro-Jet lobbyists firing their guns over IA's shoulders. The FIPB had twice cleared the project. Both times it came to nothing as, first the ministry didn't issue the critical 'no objection certificate' -- it still hasn't -- and secondly, because the Cabinet Committee on Foreign Investment overturned the proposal. This happened when H.D. Deve Gowda was prime minister. He backed Ibrahim's contention that a foreign airline could not be permitted to hold equity in an Indian airline.

Subsequently, the content of equity holding became policy in June last year, which led to Tata's shedding Singapore Airlines (SIA) as its equity partner and also to Jet Airways being forced to have its partners Kuwait Airways and Gulf Air selling off their 40 per cent stake.

The contention is that Tata is being repeatedly questioned about its equity partners. A letter from the ministry, dated July 4, asks them for details about shareholding patterns and the board of directors of both proposed equity partners American Insurance Group (AIG) and Singapore Government Investment Corporation (SGIC), and says that its technical tie-up with SIA is an "ambiguity" that "needs to be clarified". But Tata executives say that nobody is questioning Jet about anything, like a detailed check of those who now own the 40 per cent offloaded by the two gulf airlines.

"It's a totally incorrect inference," says a senior spokesman of jet Airways, declining to be identified, and refusing to go beyond adding, "Do you think a small airline like Jet can change aviation policy?" That, as far as the House of Tata is concerned, is the Rs 1,500 crore question.

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