AirAsia-Tata alliance: How the Cats lost out to the Monkeys

There is this story of two cats fighting over a piece of cake. As they fight, a monkey appears on the scene and offers to divide it equally. He first slices it into two, but one slice appears bigger. He bites off a bit from the bigger piece, and now the smaller piece appears bigger. Whenever once piece of the cake appears bigger, the monkey himself takes a bite, and soon there is no cake left for the two cats themselves.

The story of Indian aviation is beginning to resemble this story of cats losing out to the monkeys.

The sector has been run into the ground by players who were so busy fighting that they used (or allowed) the monkeys - usually politicians, the regulators and canny global airlines - to destroy the cake itself.

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Civil Aviation Minister Ajit Singh’s comments on the AirAsia proposal to start a domestic airline with 49 percent stake (with the Tatas as financial investors with a 30 percent) confirms the suspicion that ministers have largely been playing monkeys to the resident and non-resident cats of the aviation sector.

Singh told The Economic Times: “I’m not opposed to the (AirAsia-Tata) alliance… The idea of the policy was to increase investment in Indian carriers. It would have been nice had the Tatas, with their kind of resources, started a new airline.”

This statement reeks. Look at what he is saying. “I’m not opposed…” to the AirAsia alliance. Is a Civil Aviation Minister merely not supposed to be “opposed” to offers of investment in his sinking sector or positively welcome them? When the policy allows a foreign airline to take up 49 percent in a domestic airline, why should he even think of opposing it?

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We shall let that pass. Singh says the “idea of the policy was to increase investment in Indian carriers.” Once again, should a minister be concerned about giving aviation a push or giving specific promoters, whether Indian or foreign, a push? Even assuming you wanted Indian aviation reserved for Indians, is Ajit Singh unaware that the old policy, and even the new one, was entirely intended to keep specific Indian investors (like the Tatas, with the ability to bankroll a difficult sector) away?

[caption id=“attachment_635671” align=“alignleft” width=“380”] In trying to keep Indian aviation Indian, and in trying to edge rival Indians off the tarmac through crony capitalist lobbying, both promoters and policy-makers have lost out. The Cats have lost out to the Monkeys. Eliduke/Flickr[/caption]

Today, India’s aviation cats are in the process of being swallowed or sidelined by the global monkeys for the simple reason that the cats were too busy trying to trip one another, with the aid of friendly monkeys in the ministry and the regulatory agencies.

Cat No 1 in India has always been Jet Airways. And Cat No 2 is a combo of Indian Airlines and Air India, now merged. In the second half of 1990s, the Civil Aviation Ministry under CM Ibrahim made a curious policy under the influence ofCat No 1.

Ibrahim knew that no Indian promoter had the cash to pay for the high costs of running an airline. So he said foreign parties can invest in domestic airlines. But, horror of horrors, this simple policy attracted Singapore Airlines along with the Tatas.

So what did Cat No 1 do? He got the policy changed by Monkey No 1 to ensure that no foreign airline can invest in an Indian airline. That Cat No 2 himself needed to abandon his own foreign equity did not matter. If an airline can’t invest in an airline, do we expect grocers to do so? Cat No 1 was too smart for his own good.

Cat No 2 was the only airline with the ability to counter Cat No 1. This is where another simian came into the picture to help Cat No 1. Civil Aviation Minister Praful Patel saddled Cat No 2 with so much debt that it almost went under.

But Cat No 2 was able to get Monkey No 2 off its back by virtue of being a public sector company. And, in any case, there were simply too many cats in the fray to make the sector viable only for Cat No 1.

Meanwhile, Cat No 1 had swallowed Cat No 4 (Sahara), and Cat No 3, a.k.a. Kingfisher, was having indigestion after swallowing Cat No 4 (a.k.a Air Deccan). Only Cat No 5, SpiceJet, which had his own godfathers, seemed reasonably safe.

The entire cat family was in trouble by 2011, which is why all monkeys were in a panic. If all cats went down the drain, there would be no cakes for them either.

But then, they had to pretend to help all the cats while making sure some of them went down the tubes. Hence the delay in allowing foreign airlines to pick up 49 percent equity in domestic airlines. Cat No 3 had to be packed off before allowing foreign airlines to help Cat No 1 or Cat No 5.

Unlike Cat No 2, Cat No 3 did not take basic precautions on debt and bank guarantees. He has been sent to the cleaners. In any case, Cat No 3 showed more interest in printing calendars with bikini-clad girls than running an airline.

Today, the cats of Indian civil aviation have more or less given themselves over to the monkeys.

To get cash, Cat No 1 has to sell its soul to a foreign airline, Etihad. A Business Standard report today says Etihad is paying hard to get and is insisting on being allowed to raise its stake to 49 percent at the appropriate time and also sought operational control of Jet. In short, Cat No 1 has two options: lose the airline to Monkey No 3, or find another source of cake.

The moral of the story is simple: in trying to keep the whole cake to themselves, India’s cats have lost out to the monkeys. Instead of Tatas, Ajit Singh is going to get a foreign airline, AirAsia, into domestic aviation. And Jet may yet lose out to Etihad.

Never mind, that even Jet and IndiGo, which account for over half the Indian market, are already semi-foreign, since they are owned by non-resident Indians (NRIs), not resident Indians. They will be joined by a third NRI, Tony Fernandes of Air Asia. The only two purely Indian ops left are SpiceJet and GoAir.

In trying to keep Indian aviation Indian, and in trying to edge rival Indians off the tarmac through crony capitalist lobbying, both promoters and policy-makers have lost out. The Cats have lost out to the Monkeys. Finally.