Thursday, Sep 28, 2023

The Last Jet Engine Sigh

The Last Jet Engine Sigh

The aviation sector hits another air pocket as Jet, the leading private player, faces down underworld links

The Last Jet Engine Sigh The Last Jet Engine Sigh

It's not the first time that Naresh Goyal, and the company he founded and led, Jet Airways, has been mired in controversy. But the allegations have never been as serious against India's most successful private airline.

Goyal has always been unperturbed, transcending the myriad controversies that sought to ground his booming airline. It helped that some 16,000 passengers were flying daily on Jet's 38 planes. In nine years of operation, the airline today has an estimated gross revenue of Rs 2,500 crore, a profit of Rs 12.5 crore as on March 31, 2001, and a 42 per cent share of the Indian skies. Unofficial estimates put the company's assets at above Rs 2,000 crore.

Now the Indian government claims that he is a frontman for Dawood Ibrahim. And the allegations may jeopardise, even close down Jet's operations. On December 12 last year, Anjan Ghosh, joint director, Intelligence Bureau (IB), wrote a letter to Sangita Gairola, joint secretary (internal security), ministry of home affairs (MHA). The demi-official letter said IB has "confirmed information of intermittent contacts between Goyal and underworld dons Chhotta Shakeel and Dawood Ibrahim to settle financial issues". The letter also mentions Goyal's "bonhomie" and close business links with "Gulf Shaikhs" (sic) that go back over two decades. "These connections," says the letter, "are believed to have been used repeatedly not only to get direct investments, but also to get tainted Indian money laundered and recycled into business in India. Much of this kind of money is generated through smuggling, extortion and similar illegal practices." Last week, a 30-odd page report prepared by the IB was forwarded to the civil aviation ministry to review Jet's security clearance.

Jet Airways categorically denied all allegations against it through an aggressive ad campaign. The company insists that the ownership of Jet Airways (India) Pvt Ltd is a simple structure and that information has been furnished to the government. Says Saroj K. Dutta, executive director: "The entire issued and subscribed capital of Jet Airways is 100 per cent held by Tail Winds Ltd, an overseas corporate body, registered in the Isle of Man. Jet Airways chairman Naresh Goyal, an NRI, is 100 per cent owner of the entire issued and subscribed capital of Tail Winds." Incidentally, Isle of Man is a known tax haven.

It is said that the "financial dealings" of Jet Airways first came under the IB scanner way back in 1993, soon after it launched operations. The IB focus resurfaced four years later in '97, when Goyal bought back the stakes of Gulf Air and Kuwait Airlines, both of whom owned 20 per cent in Jet. The '97 civil aviation policy forbade any foreign airline from entering the domestic aviation sector and this made such a buyout compulsory for Goyal.

Although the company insists that, since inception, all investments in Jet were done through proper rbi channels, the agencies have always refused to buy the story entirely—suggesting the sale was only a gimmick, that Gulf money, hidden behind the Isle of Man curtain of secrecy, still percolates through Jet. So for the last four years, IB has been keeping a tab on possible Gulf links, even seeking the Research and Analysis Wing's (raw) help to provide inputs on the suspected nexus.

On September 20, 2000, home secretary Kamal Pandey forwarded a request of disinvestment minister Arun Shourie to the then IB director Shyamal Datta (letter No I-382/HS/2000) asking for detailed information on the airline. Datta's reply (letter No IV/8(121)/2001-1705, dated October 23, 2000) highlighted the RAW findings that Gulf Air, Kuwait Airways, some diamond merchants of Belgium and a few Indians held stake in the company.

Sources say the Goyal-Dawood connection was first probed in 1998-99, based on "threat calls from the underworld" received by the senior management of the now-defunct NEPC Airlines.However, Datta's letter to Pandey clarifies that Dawood's association couldn't be confirmed. raw sources say their latest report supports IB findings, now included in the top secret mha file.

The IB claims that it has recorded conversations between Goyal and Dawood. One such revealing call was apparently made in August 2001, Goyal in Paris calling Dawood in Karachi with the transcript providing "key leads into their financial dealings". Officials from the Department of Revenue Intelligence (DRI) are also probing Jet's inbound courier and revenue collected on custom duty.

Incidentally, the IT assessments of Goyal for three assessment years 1993-94, 94-95, 95-96 had been reopened since it was alleged by the Enforcement Directorate (ED) that he had not disclosed the source of investments in the airline. But the operation met a dead end at the Isle Of Man, which under its laws stonewalled all queries. The ED letter to IT officials suggested that though the auditors' report says Goyal pumped in $20 million in the share capital of Tail Winds, he actually invested only $6 million of his own money along with $4 million from his partners, Gulf Air and Kuwait Airlines. The ED suspects that the rest of the cash originated in the Gulf, routed through the Isle of Man as Goyal's money.

MHA officials claim that even leading British investment bank Schroeders and Singapore-based Warburg Pincus were perplexed by the equity structure of the airline when they were approached by Jet for funds. Similarly, they claim that British Airways, with whom Jet sought an alliance, had expressed its reservations. Jet, as usual, denied all of this.

The government's cynicism over the identity of Jet's ownership was best represented by Shourie. Last year in Parliament, he referred to Goyal as the "so-called owner of Jet Airways". Says he: "Nobody is able to tell me who owns Jet Airways. Is it an Indian airline or a foreign airline?..."

But even if there are underworld connections, it will be extremely difficult to prove in a court of law. No information about source of funds can be extracted from the Isle of Man. Already, intelligence officials have informed the MHA of the possibility of politicians being financially involved. Heavyweights who have long enjoyed associations apparently include a chief minister, a current and a former cabinet minister from Maharashtra. Such links, it is believed, delayed the investigations and have now inadvertently forced aviation minister Shahnawaz Hussain to deflect the focus elsewhere. "Security clearance will be reviewed by the MHA and we will abide by their decision," he says. Although ministry sources feel that Jet's profitable operations may not be affected immediately, its "expansion plans may well be stopped and no fresh licenses issued to operate in new sectors". A temporary grounding is also a possibility but once the security clearance is revoked, clouds will loom over the operating licence as well.

Meanwhile, the timing of the "exposure" has surprised the industry which feels that there is no room for more than two successful airlines in India. Only a fortnight ago, the IA board had adopted a mega expansion plan. This involves a Rs 700 crore interest burden and another Rs 700 crore in depreciation costs. Also, in order to justify the expansion, overall traffic has to zoom from the present three per cent to 15-20 per cent, according to experts. Despite a zero cost outgo, IA is currently losing Rs 200 crore a year. So is the Jet controversy then a continuation of the corporate battles that has plagued the sector, exploiting links with the underworld? A case in point is that of the now-defunct East West Airlines. Reports indicate that finally IA may be disinvested soon with even a modification of the policy, allowing fdi into the sector.Thus the possibility of a Tata-Singapore Airlines comeback is also not ruled out. There were strong mutterings at the time that C.M. Ibrahim, aviation minister in the Deve Gowda government, had altered the aviation policy at Goyal's behest to upset the aviation dreams of Ratan Tata through his collaboration with sia. When contacted by Outlook, however, a Tata group spokesperson said that "we no longer have any interest in aviation, and the alliance with Singapore Airlines does not exist any more". But speculation runs riot as even rival Sahara is gunning for a complete overhaul with fleet expansion.

In retrospect, it is possibly India's strange policy of not allowing foreign airlines to invest in the sector that is the root of all that is rotten there.


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