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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Your Flight Is Delayed

What’s holding up the Tata-SIA airline deal?

By Annabel Walker and Arjuna Ranawana / New Delhi


YOU ARE NOT YET cleared for take-off. As of Feb. 18, that was still New Delhi’s message to India’s Tata Group and Singapore Airlines. The cabinet was expected to rule on a Tata-SIA proposal to set up a $700-million domestic airline, prospectively the country’s largest by paid-up capital. But Tuesday came and went without the expected thumbs up or down. Now, the word around New Delhi is that opponents of the plan hope to bury it under national-budget wrangling due to start soon. Further complicating matters is a threat by communist parties in Prime Minister H.D. Deve Gowda’s ruling coalition to organize protests against economic liberalization.

Those against the joint venture cite the need to protect domestic carriers, particularly the state’s dominant Indian Airlines, from world-class competition. “I, as an Indian, should not allow foreign airlines in our domestic skies,” Civil Aviation and Tourism Minister C.M. Ibrahim has said. In January he announced a rule barring foreign carriers from owning shares in Indian ones, which are allowed to sell up to 40% of their equity to foreign firms as long as they are not airlines. The apparent aim is to take advantage of overseas capital, but not airline expertise, which could lure travelers away from existing carriers.

At least one top official sees a ploy in all this. “The lobbyists used the pretext that Indian Airlines would be affected, but actually they were acting on behalf of vested interests who do not want quality competition,” argues Industry Secretary N. Mohanty. His boss, Industry Minister Murasoli Maran, heads the Foreign Investment Promotion Board which approved the Tata-SIA plan in December. One company that lobbied hard for the ban on foreign airline stakes is Jet Air, the front-runner among private carriers. It has even agreed to have its Arab airline partners, which took a 40% stake at its founding, sell out and comply with the new rule.

Indian Airlines CEO P.C. Sen told Asiaweek that more competition does not worry him, provided all players follow the same rules. “The social obligations IA is burdened with must be shared,” he said. “Will Tata-SIA operate flights to Port Blair, Jammu and Kashmir and other places where we have to suffer huge losses?” The venture partners have in fact agreed to comply with the requirement for all domestic carriers to service a certain number of unprofitable routes.

Tata-SIA has also agreed to start up with only five planes, as long as it can add more later as demand increases. Nearly 11 million passengers took domestic flights last year. Of them 8.5 million flew Indian Airlines and the rest chose one of the four private airlines with scheduled services or the three “air taxi” operators. The market is growing 8% a year, which translates into nearly 800,000 additional flyers annually. That’s plenty for everyone. Besides, passenger growth may accelerate if competition improves service and trims fares.

Joseph Thachil, editor of the aviation journal Skyflier, believes the state carrier is likely to retain its dominance. But private airlines will be hardest hit by increased competition. S.S. Sidhu, former chairman of both Indian Airlines and its subsidiary international carrier Air India agrees.“IA has shown a capacity to compete and will probably survive,” he said. The state airline has certainly made a modest comeback since the advent of private carriers in 1991 cut its market share to 30%, from near-monopoly. Indian Airlines had also suffered immensely from two incidents that forced it to ground 10 of its new Airbus A320s. Accumulated losses rocketed to $600 million. That led New Delhi to impose the requirement of serving loss-making routes on private carriers.

Indian Airlines has since restructured itself from an agency into a corporation, and raised its market share to 77% last year. But it is still losing money -- $31 million last year and, under a turnaround package, another $300 million until 1999. “If the airline continues to operate without a government- backed financial strategy, it would be totally marginalized with only a small market share and heavy accumulated losses,” said a report by the state committee looking at improving its performance. The committee has urged that the majority of shares be sold to the public and 75 new aircraft be bought by 2003.

The cost to India of shooting down the Tata-SIA venture could extend beyond the aviation sector. “There was a clear indication that the substantial investment poised to come into India from Singapore would be stayed if the airline venture was blocked,’’ an official says. Prime Minister Gowda was also believed to have supported the Tata-SIA bid. PM Gowda had worked with Singapore to promote joint ventures in Karnataka state, where he was chief minister. Nearing completion there is the Singapore Technology Park, a venture near Bangalore between a Singapore software developer and the Tata group.

Advocates of the Tata-SIA venture had hoped it would enable Indian Airlines and other carriers to learn from foreign technological and operational expertise. Overseas airlines are also likely to invest in infrastructure and airport facilities, making flying a safer and increasingly attractive travel option. Businessman Vicram Singh echoes the views of many passengers who found that competition in the early 1990s has already improved Indian Airlines. Still, Singh, like many Indians, sees the need to keep the flag carrier in business. “Tens of millions of rupees in taxpayers’ money has been spent on keeping IA going,” Singh said. “It should not go down the drain.” And it stands a good chance of avoiding that fate if it learns from world-class competition.


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