Business

Tata-SIA Airborne Again

The Phoenix may finally break out of its jinx with the Gujral fiat on 'open skies'

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Tata-SIA Airborne Again
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IS it on or is it off? No one in the government seems to know, far less the aviation industry. Two months after the Union cabinet finally sealed the fate of the ambitious Tata-Singapore International Airlines (SIA) proposal saying equity from foreign airlines will not be allowed directly or indirectly in domestic air services, the jinxed project seems to have bounced back with a signal from the most unexpected quarters-I.K. Gujral. The Indian Prime Minister, on an official visit to Nepal last fortnight, spelt out his point of view, without a clear 'open sky' policy, it would be difficult to think in terms of real economic development. The current aviation policy, he said, was too obsolete and needed drastic changes.

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Within 48 hours of his return, Gujral backed up his words with action. But instead of removing strongman Chand Mahal Ibrahim from the Civil Aviation portfolio, as was speculated, he appointed a powerful minister of state in Jayanti Natarajan from the Tamil Maanila Congress (TMC) group in the ministry.

Suddenly the aviation establishment saw the writing on the wall. Says a civil aviation ministry official, "The announcement means just one thing. Tata-SIA is back on the agenda. The changes have more to do with the re-induction of the Tata-SIA project. The rest of the terms remain the same."

Across the aviation chessboard, comprising Air India, Indian Airlines and a host of private airline operators-notably Naresh Goyal of Jet Airways, which also has foreign equity from Kuwait Airways and Gulf Air--the induction of Jayanti Natarajan could only mean bad news. The reason: the TMC's known closeness to the Singapore Airlines establishment, indeed Singapore itself. The appointment has come amidst charges, being probed by the CBI, that Indian Bank bosses, in league with senior ruling Tamil Nadu politicians, had laundered money through leading Singapore financial institutions. Natarajan, who took charge on June 10, says she is too new to the ministry to proffer comments on the subject. "Give me some more time," she told Outlook. But that may not mean much. When the Tata-Singapore project was stymied, the main opposition had come from Ibrahim, all-powerful during Deve Gowda's time but maintaining a low profile since his mentor lost the prime ministership and Ibrahim's own ouster from the crucial I&B portfolio. Not curiously, vociferous backing for the Tata-SIA project came from Industry Minister Murasoli Maran and Finance Minister P. Chidambaram.

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But away from all this political sabrerattling, the battle for the aviation turf is getting hotter. Says Eric Vas, manager projects, Tata Industries: "As far as we are concerned, the tie-up between us and SIA stands and we are hopeful in the long run. The need of the hour is more seats and aircraft and Tata-SIA can provide that." Providing figures based on the government's Economic Survey, Vas divides the domestic air growth trend since the 1980s into two periods--the pre-1988 and post-1988 phase.

"The years between 1980-81 and 1987-88 witnessed a steady growth in domestic air traffic at 10.5 per cent per annum on an average. Post 1987-88, air traffic has stagnated at around 7.6 to 8.7 per cent. The main factor behind this phenomenon seemed to be the rising real cost of travel as also the slower growth of industrial output," Vas points out. According to projections carried out by Tata Economic Consultancy Services, India will need to acquire the equivalent of an additional 78 aircraft by the year ending 2001. Says the study: "This is well documented in the Planning Commission reports and is reflected in today's situation.

Further, the Indian Airlines fleet needs to be replaced. The Boeing 737s are over 25 years old. The A-300s are also 25 years old. Therefore, an additional 29 aircraft will have to be replaced. The total number of aircraft required (new and replacements) is 107. Viewed in this context, the Tata Airline proposal adds merely 19 aircraft by AD 2002."

According to Tata projections, there is a net decline in domestic fleet capacity of 1,100 seats daily and some of the sectors remain so choked that confirmed bookings are not available even a week in advance. This means an infrastructural constraint that has a particularly crippling cost for the industrial and service sectors in India, which comprise roughly 67 per cent of the total Indian economy.

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But it is this projection, carried out by the Tatas and presented to the Civil Aviation Ministry, that has raised the hackles of domestic operators who insist that the Tata line is 'wildly inaccurate'. Says P.C. Sen, managing director, Indian Airlines, and chairman of the joint Indian Airlines-Air India board: "I am not opposing the Tata-SIA proposal. I am opposing over capacity. I am for competition, but if the competition is such that all players end up being unhealthy because of over capacity, then it is something that is undesirable."

IA executives have arrived at their own calculations--not necessarily based on the index of industrial production (IIP) and the gross domestic product (GDP), but recognising the fact that 80 per cent of those who use domestic flights are corporate sector travelers on business. "While this may have been proved during the '80s, a period in which the Indian economy was predominantly marked by the existence of the 'license-permit raj', these indicators may not be valid in the post-liberalised economic scenario. In fact, liberalisation of Indian economy started only in 1992," says an Indian Airlines executive.

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A detailed IA paper prepared last week points out different trends. "What is really relevant is that while the index of production has almost doubled from 142.1 in 1985-86 to 283.6 in 1995-96 and the cop has risen 75 per cent in this decade, passenger air traffic has grown only 25 per cent in a span of 10 years. This clearly indicates that the growth in air travel on a long-term basis is not in proportion to the growth in IIP and GDP," it says.

The IA paper argues that the combined fleet of IA and air traffic operators (ATOS) is 86 aircraft currently, which is an increase of 80 per cent in fleet size over 1987-88. "Obviously, the domestic market has not responded to this massive increase in capacity as is evident from the traffic data for the last decade and most of it has been inducted into the market after 1993. IA, with a fleet of 48 aircraft, flew 10.4 million passengers in 1987-88," the paper says.

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The gauntlet of nationalism and patriotism has also been thrown into this complex politico-economic environment. Says a Mumbai-based private airline operator: "Can Singapore-Tata serve remote areas in India as we do? Operating in India is not all profits only. There is also the question of 'service'. Like Air India evacuating Indians from the Gulf. In addition, why should we allow a foreign airliner to operate from our soil or even allow them equity participation?" But that is a line Tatas are not willing to buy (see table).

In addition, aviation experts say that Singapore Airlines is also acquiring new airplanes and hence needs more parking space, so what better than Indian airports barely three hours away. With the primeminister's announcement last fortnight about overhauling aviation policy, the lines between fact and rumour are increasingly getting blurred. But clearly, the Tata-SIA issue has more lives than a cat.


The Foreign Hand

Some important airlines, which have foreign shareholding
Airline CompanyForeign shareholdersEquityAir MauritiusAir France
Air India

 7.7%
7%

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Air New ZealandQantas*19.4%Continental AirlinesAir Canada*19.6%Delta AirlinesSingapore Airlines
Swissair
5%
4.6%
Kenyan AirlinesKLM26%Northwest AirlinesKLM18.8%QantasBritish Airways*25%US Air GroupBritish Airways*22%


Source: Airline Business
*Listed

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