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Thursday, 25 April 2013 00:00
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Policy on bilaterals needs to be fully spelt out

 

Assuming the aviation ministry clears the 42,000 extra seats per week to Abu Dhabi that Jet Airways has asked for—as of now aviation minister Ajit Singh says the government is still studying the proposal—the Jet-Etihad deal is a clear winner for both airlines. The R2,075 crore Jet Airways will get from Etihad Airways for parting with 24% of its shares will help the airlines in paring its R12,000 crore debt and a low-cost $600 million loan to pay off its more expensive debt has also been thrown in. More importantly, since Etihad is interested in getting access to India’s lucrative outbound passenger market—this is projected to rise to 50 million by 2020—the Jet deal gives it access to this. The way the arrangement will work, Jet will ferry 2 million passengers from various parts of India—that’s a 10-fold increase over its current capacity—to Abu Dhabi and Etihad will then fly them out to different destinations across the world. Both airlines, needless to say, benefit from the deal. In the case of Etihad, from a situation in which it hardly has a home market, it gets a big, and growing, market to operate out of. In the case of Jet, the deal values it at R8,500 crore or double its current market capitalisation.

Not surprisingly, the deal has been criticised by many major players. Airport operators who invested heavily in building new capacity at both Delhi and Mumbai, for instance, are looking at the possibility of outbound passengers using Abu Dhabi as a hub instead of their own airports. Other local airlines, similarly, will have to deal with the effects of a big rival in global markets—this includes the loss-making Air India for whose turnaround the government has committed R30,000 crore for. But signing more bilaterals will increase competition in the market—that can only help passengers and that has to be the cornerstone of any aviation policy. What would help in such a situation is the government clearly spelling out its policies on bilaterals. If, for instance, airport operators knew the policy could be an aggressive one, they would plan their investments differently. Similarly, rival airlines would look for tie-ups of the Etihad kind or code-shares if a policy of liberalising bilaterals was well known. In all such negotiations, there are other national interests that need to be kept in mind, and which can’t always be spelt out—this could be gas in the case of Qatar or the promise of investment from the UAE’s $627 billion sovereign wealth fund, the second-largest in the world, in return for India helping the UAE’s wholly-owned airline. But to the extent possible, a clearer policy on the future of bilaterals will benefit all concerned.

 
 

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