Another hurdle for Jet-Etihad? AI may tell CCI deal 'anti-competitive'

Fresh hurdles have appeared in consummation of the equity deal between Jet Airways and Etihad Airways which can only mean a slow death for the Indian airline. It is urgently in need of the cash pile from Etihad, but now two different Government agencies want to have their day in the sun by asking questions after the Union Cabinet cleared both, the equity deal and the amended Air Services Agreement (ASA) between India and Abu Dhabi.

Some questions have recently been raised on whether directors of the proposed airline, which will be formed after Etihad picks up 24% equity in Jet, have been given security clearance by the Home Ministry. And now, Competition Commission of India is seeking comments from Air India, Jet’s primary full service competitor, on whether the equity deal will be anti-competitive.

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[caption id=“attachment_1209785” align=“alignright” width=“380”]  Jet Airways is in urgent need of funds from Etihad. AFP.[/caption]

The first set of queries on security clearance seems to be coming as an after thought, the second set by CCI seems a no-brainer. Why were security agencies sleeping till now? And why would Air India not harp on how the deal will destroy competition and hurt the Indian aviation industry?

In fact, sources Firstpost spoke to this morning aver that the proposed equity deal between Jet and Etihad will mean that the market share of the combined entity on the India-Abu Dhabi route will increase to about 80%, with only 20% remaining for other carriers including Air India. “If this is not anti competitive, what is? It is erroneous to believe that Jet and Etihad will continue to work as separate entities after the stake acquisition by Etihad and this has been proved by multiple queries the Government itself raised over effective control and ownerhsip of the new proposed airline,” these sources said.

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Air India is expected to file its reply to CCI queries by this evening. Besides pointing out the complete skew of the India-Abu Dhabi market towards the Jet-Etihad combine, AI’s reply will also seek to raise questions about cost structures, hidden subsidies and non-transparent mode of operations of all Gulf carriers including Etihad.

Air India is obviously not going to leave this chance to put doubts in the minds of CCI babus about how the Jet-Etihad deal will kill competition, at least on the India-Abu Dhabi route. Will this mean CCI could actually call the Jet-Etihad equity deal anti-competitive? It is one of the possibilities.

That no one in the domestic aviation industry was happy with either the equity deal or the four fold increase in weekly seats which has been allowed between India and Abu Dhabi, has been clear for many months. Earlier, a prominent low fare airline was lobbying hard for the deal to fall through; several Members of Parliament and others recorded their objections to the bilateral seat entitlements between the two countries.

But since the Government overruled all objections and everyone cleared the equity deal as well as the bilateral amendment, it is churlish to now find faults in hindsight. Besides, this could do incalculable harm to Jet’s balance sheet.

As we have pointed out earlier, Jet Airways is in urgent need of funds from Etihad as lack of inflows has been depleting its balance sheet reserves to dangerious levels and further escalating interest costs. Analysts have warned that unless the cash bleeding stops and Jet reigns in ballooning costs, it may have to resort to asset sales in future which in turn could threaten its expansion plans. In short, the airline is gasping for funds while costs escalate and passenger traffic growth remains inadequate.

The deal with Etihad will mean offloading 24% equity by Jet’s promoters in return for over Rs 3200 crore funds into the cash starved Jet. Not only is the delay in arrival of these funds a matter of concern, it is now not even certain if this large infusion will even be enough. While declaring the second quarter results recently, the airline had notified stock exchanges about an auditors’ note. Here, auditors have made it clear that its continuation as a “going concern” is dependent on funds it receives from Etihad. Analysts have said negative networth for Jet Airways stood at Rs 1700 crore at the end of Q2.

Jet needs to take drastic measures to keep its bleeding balance sheet from weakening further. Airline officials had said earlier that a network wide study on fleet and route planning should be completed by October end and should help them plan better on intergration of network with Etihad as well as on domestic expansion.

If only the various Government agencies stop playing musical chairs over a done deal.