AirAsia, Vistara face hurdles as rivals gang up

May 30, 2014 was an action packed day for aviation sector in India. AirAsia India announced its launch, 22 days after getting the flying permit.

Within hours, a three-page petition by Federation of Indian Airlines (FIA) landed at the desk of Civil Aviation Minister Ashok Gajapathi Raju, who was just four days into his assignment. No prizes for guessing.  The same day, Delhi High Court issued notice to the Centre seeking its response on a petition by FIA demanding cancellation of approvals given to a joint airline venture of Tata Sons and Singapore Airlines, later christened as ‘Vistara’. The stage was already set for a fierce bout with existing players on one side and the newbies on the other.

Only days before, airlines such as IndiGo and SpiceJet under the banner of FIA had approached Delhi HC seeking cancellation of Air Operators Permit (AOP) granted to AirAsia but could not get any relief as the judges refused to stay the decision.The opposition against the new players did not start one fine morning. It began as soon as AirAsia along with its minor partners Tata Sons and Telestra applied for approvals. Tatas again faced the problem when they announced their second joint venture.

Ironically, the first to raise the red flag was the Civil Aviation Ministry. It felt a clearance by Foreign Investment Promotion Board (FIPB) for AirAsia was against the FDI policy. Later, it changed tracks and gave NOC for the USD 30 million venture. But rival airlines and BJP leader Subramanian Swamy were not to leave it at that. They alleged the FIPB approval was illegal and raised questions about “foreign” control over the airline. The airlines petitioned the Supreme Court against the FIPB approval but were asked to approach the HC.

 The ire of the existing players was directed at the September 2012 decision to allow foreign airlines to invest up to 49 per cent, which was greeted with much fanfare. The beleaguered operators felt that it opened door for investments, which would take them out of the financial crisis they were facing. The last thing they wanted was competition. But the government gave the green signal for foreign airlines to invest in new ventures. All hell broke loose. The airlines went to court.

In their petition before the HC, the FIA argued that the relaxation in FDI policy was mooted to meet the financial troubles of airlines, whose cumulative loss was Rs 77,000 crore, and that it was in the “context of existing operators only”. They felt the introduction of foreign airlines through new ventures defeated the very purpose of the policy. They also questioned the ownership pattern of these ventures, claiming the control was in foreign hands, a strict ‘no-no’ according to rules. Finance and Commerce Ministries were adamant, saying the FDI policy in general does not make a distinction between ‘brownfield’ and ‘greenfield’ for investment except for pharmaceuticals.

Hectic lobbying

Both sides began hectic lobbying and there were hurdles for AirAsia and Vistara in getting approvals. The DGCA took time on deciding the objections against AirAsia and Vistara. But when it made up its mind, the regulator emphatically rejected the contentions of FIA. Echoing the government, the DGCA felt that there was a strong need for bringing “operational efficiency and expertise” in existing airlines to ease their financial hardships, which could be brought by stiff competition and improved work culture “that can only be provided by introduction of new entrants”.

Though the newbies got government and the regulator on its side, the battle was not over yet. The FIA moved court at every juncture. On May 7, AirAsia India got the AOP, the final hurdle, with a rider that its validity depends on the outcome of HC order on the petitions filed by FIA and Swamy. FIA rushed to the HC against AOP but the judges refused intervention saying permission was conditional.

AirAsia pounced on the opportunity by announcing the launch of its operations within three weeks of DGCA’s final nod, a move that took its rivals by surprise at a time when the market was going through a lean season. Rivals alleged it was part of AirAsia’s strategy to present a “fait accompli” and create third party rights. Now Vistara is awaiting AOP to start its operations.

While the case is still pending in HC, AirAsia and Vistara appear to be buoyed by government stand. The regulatory approvals were delayed due to hectic lobbying by rivals, the two carriers allege but they hope that they would not have to shut shop with government needing foreign investment in the country. A final word could be said only when HC takes the final call in pending petitions.