Thursday, June 20, 2013

Air Asia deal is violation of rules says Subramanian Swamy

Janata Party chief Dr Subramanian Swamy has questioned yet another airline deal . After raising doubts about Jet-Etihad deal ( refer to earlier pages in this blog ( , this time  the  questions relate to Air Asia -Tata deal. 
Dr Swamy  earlier wrote to Prime Minister Man Mohan singh on Etihad deal and now he has written another letter to PM on Air Asia.  We are reproducing the  text of the letter from Dr Swamy to PM.

Dr. Man Mohan Singh                                           June 19, 2013
Prime Minister
New Delhi                                                      
Dear Prime Minister:                                                                                  
1.   I write this letter on the subject of another developing mega fraud in the nation’s Civil Aviation affairs, which fraud also impacts on India’s national security.
2.   The fraud is in the FIPB clearance given under the authority of the Minister of Finance Mr. P. Chidambaram and is prosecutable under provisions of law relating to cheating, criminal conspiracy, corruption and which fraud will cause collapse of many of our domestic airlines, creating a systemic risk for financial institutions, a large loss to public exchequer, and blow a hole in the country's transportation infrastructure.
3.   Air Asia Joint Venture was cleared by the FIPB and approved by Finance Ministry in violation of all norms, rules, regulations, policy governing the Civil Aviation Sector, Foreign Investment and Security imperatives.
Brief Summation of Events:
1.   Planning Commission through its Order NO.18/1/2011 Tpt.   dated  6.4.2011 had recommended constitution of a Working Group on Civil Aviation for the formulation of 12th Five Year Plan review the physical and financial performance of various constituents units of Aviation sector with special focus on Ministry of Civil Aviation and its  constituents indicating their achievements and failures.

2.   In terms of the aforesaid Order, The Report of Working Group  on Civil Aviation for  formulation  of twelfth five year plan   (2012-2017), recognized that  most Indian carriers are reeling under losses.

3.   During the  three year period  between April 1, 2007  and March 31, 2010, Indian  carriers had incurred an accumulated  operational loss in excess of  Rs. 26,000 crores.

4.   The said Report further acknowledges the impediments  in the  efficient  working  of the  aviation sector including the  the FDI policy governing the aviation sector. It notes that:
"..the existing FDI Policy governing the CIvil AviatIon Sector does not permIt foreign airlines investment  [emphasis added] thereby denying access to potential sources of capital and expertise. This requires a re-look to pave the way Indian carriers to access the much needed capital at low cost  and also the expertise to  access international markets quickly."
a.   That on 07.02.2012 the 8th  meeting of Group of Ministers on Civil Aviation was chaired by the  Finance Minister,  wherein the  issue of permitting FDI up to  49% by the  foreign  airlines, in Indian carriers was taken up and it was decided during the same, that an appropriate proposal be tendered for the consideration of the CCEA.

b.   The Appropriate CCEA Note was prepared by MoCA (Ministry of Civil Aviation)and sent to various Ministries (of Corporate Affairs, Home Affairs  and  External Affairs), Departments  (Commerce and Economic Affairs), Planning Commission and DIPP        for  their  consideration  and comments. The said Note inter-alia:      

i.      introduces the CCEA Note as a proposal "to invest in the capital of Indian companies operating scheduled and non­ scheduled air transport services";
ii.     rationalises the proposal on:
(a) the 8th  meeting of Group of Ministers on Civil Aviation, chaired by the Finance Minister,  on  07.02.2012 on the issue of permitting  FDI up to 49% by foreign airlines, in Indian carriers and hence the proposal;
(b) private  airlines  are in  dire  need of funds for the operations  and service up-gradation to compete with  other global carriers;
(c) denial  of  access to  foreign  capital could result in the  collapse of many of  our  domestic  airlines,  creating  a systemic risk for financial institution, and  a  vital   gap  in  the   country's infrastructure
(d) the budget speech 2012-2013 of the then Finance Minister which envisages such  equity   participation by  foreign   airlines  in   the   airlines already operating in India;
c.   That he comments/suggestions from the authorities  above supported the CCEA Note to permit  foreign airlines, to Invest  in  the  capital  of  Indian  companies  operating scheduled and  non-scheduled air transport  services upto  the  limit  of  49% of  their  paid  up  share  capital. However,  no  suggestion was proposed,  to  include a “greenfield airline”  project.

d.   That on 20.09.2012, Department  of Industrial Policy &  Promotion,  Ministry of Commerce & Industry, issued the reviewed policy on Foreign Direct Investment in the Civil Aviation sector. In terms of the reviewed policy inter-alia permitted:     
"foreign airlines also to invest, in the capital of   Indin companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid up capital.”
e.   That it was clear and express policy to allow FDI ONLY in existing carriers was reiterated by  Civil Aviation Minister, Ajlt  Singh's observation  as  published in Business Standard, inter alia stating:
"We are not qiving licences for greenfield airlines. As of now, FDI (foreign direct investment) In aviation can come only through existing airlines."
f.    That on 19.02.2013 A Memorandum of Agreement was signed between Air Asia Berhad, Air Asia Investment, Tata Sons limited  and Telestra Private Tradeplace Limited for forming the Joint Venture Air Asia. Similarly  Articles  of  Association  of  AirAsia  are  also executed by the Parties and Application for FIPB approval was filed by Air Asia.

g.   That on 01.03.2013   Directorate  General  of  Civil Aviation   an  instrument   of  MoCA,  issued  the   "Guidelines For Foreign Direct Investment in  the  Civil Aviation Sector". The said Guidelines in its object and reasons inter-alia state:
"The Existing policy however prohibits FDI by foreign airlines directly or indirectly in the equity of scheduled and non scheduled passenger airlines. The Government of India has reviewed the position in this regard and decided to permit foreign airlines also to invest in the capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their pad up capitol vide the Press Note  issued  by the    Department     of   Industrial    Policy   &   Promotion, Ministry of Commerce and Industry, New Delhi...... "
5.   It  is abundantly clear that  the  Guidelines were issued only  for  the   existing  airlines  since the   CCEA Note,  Ministry of Civil Aviation decision, and the DIPP PressNote NO.6 of 2012 were all based on the  reason and for purpose of allowing  FDI in the  existing airlines. 

6.   That on  04.04.2013,  the meeting  of FIPS was scheduled to decide on the Application  filed on behalf of Air Asia. The FIPB issued the impugned approval granting clearance, despite:
a)  the Ministry of  Civil Aviation's  ("MoCA")  explicit  and clear  suggestion that  the impugned approval is against the letter  and spirit of the Cabinet Note which   delineated   that   the   amendment  was aimed at infusing capital into the existing cash- starved aviation companies;
b)  MoCA's objection during the impugned approval stage  inter-aliastating that the DIPP's Press Note 6 of 2012 needs clarification to the effect that the same applies to JV's to be incorporated also;   .
7. The basis of Cabinet discussion  for allowing FDI was reflected in the underlying reasons for need of such policy change in the DIPP Press Note clearly,  which  read that  FDI in foreign  airline was permitted  by the Government only in the carriers operating an airline as opposed to one desiring to set up a new airline.

8. It  is reliably learnt by me that in the entire process of CCEA Note and decision, no consultation took place with  the Ministry  of Defence. It is disturbing to note the same as many airports in India, including Pune, Goa, Chandigarh, Amritsar, Agra and Bagdogra to name a few are Defence Airports, which are being used as Civil Aviation airports.  It is also noteworthy to point out that, an application in the late nineties on behalf of Singapore airlines to set up a domestic airlines (with an indian partner) was rejected due to severe concerns raised by the Ministry of Defence.
9. That Further Press Note No 6 (2012 series) dated September 20, 2012 inter alia  mandates that scheduled operator's permit can be granted only to a company"  the substantial ownership and effective control of which is vested in Indian Nationals" . Similarly, Section 1(ii) (c) of Schedule XI of Aircraft  Rules, 1934  mandates, that  (a) "substantial  ownership"  and (b) "effective control" of such entity (to whom the scheduled operator's  permit be granted) be vested in Indian nationals. However, neither (a) "substantial ownership" nor (b) "effective control" are defined and explained either under the governing act i.e. the Aircraft Act 1934 and the Rules there under, the Press Note No.6  of 2012, or any other  legislation/policy governing the aviation sector leading to a legislative vacuum.
10. There is a potent threat of foreign airlines structuring their business with the intent of exercising "effective control" of the airline due to their nature of investments being strategic rather than financial. This will expose domestic skies into the hands of foreign airline which is clearly neither the purpose nor the intent  for opening the  FDI to foreign airlines. Such potential  threat  will  be even more  pronounced in  cases where  a foreign  airline  partners  with  non-aviation  business entities in India. In mature aviation sector such as United States and European Union, the statute  and/or policies of the government  explicitly define the terms (a) "substantial ownership" and (b) "effective control". Further, such definitions and their application/operation  are specific to the aviation industry and is distinct from the general statute/policy  relating to ownership and control  in other  businesses in order  to  protect  the  domestic  skies from  a foreign airline's (through its subsidiary or directly) possible sabotage and control, something that Is duly recognized under the principal instrument of international  public air law - The Chicago Convention, 1944.
11.That further it is noteworthy  to point out that  media reports confirm that JV partners of AirAsia (India) Pvt. l.e. Tata Sons Ltd and Telstra Tradeplace Pvt. Ltd. Are only strategic investors and are neither a part of existing operating scheduled airlines in India nor Involved in any manner in the civil aviation sector. Therefore it becomes imperative that While evaluating, the Government must apply the doctrine of 'piercing the corporate veil', as has been used in foreign jurisdictions to identify and establish whether such "substantial ownership" and "effective control" is followed  in letter  and spirit.  Such requirement  and scrutiny by MOCA/DGCAmust not be perfunctory  but be objective. It is essential that such compliance is not only on paper but infact in the hands of Indian nationals.
12. That Media reports confirm that application of Air Asia (a new airline venture in India) has been approved by the  Foreign Investment  Promotion  Board (FIPB). And that Finance Ministry has given approval, Such decision under  an existing legislative vacuum, is not only contrary to existing declared policy, but also in direct contravention to the rationale and decision relating to FDI permission to foreign airline in civil  aviation  sector  by  CCEA taken  in  September  2012  as  well  as contrary  to  the recommendations made by Committees constituted to identify specific issues plaguing the civil aviation sector in India.
13.  Hence the FIPB decision clearing Air Asia is not legally valid with  either the  requirement/need  of the aviation sector, the recommendations made by various empowered committees, and in fact, directly contravenes the existing policy as per decision of the CCEA, and is a gross and blatant fraud which involves provisions in law of cheating, criminal conspiracy, violation of various provisions of Prevention of Corruption Act and not in the public interest since it is clearly an attempt to  cause a collapse of many of our domestic airlines, creating a systemic risk for financial institutions, loss to public exchequer and a vital gap in the country's Infrastructure, Therefore I strongly recommend that you hold a comprehensive review and following which I am certain that you would revoke this impugned fraudulent Air Asia deal.         
14. If you decide to direct a review of this aforesaid permission to allow this Air Asia deal, and its revocation, I shall happy to assist your government in the entire matter as the matter is of national importance and public interest involving not only economic considerations but also vital aspects of national security. Otherwise, if your Government decides for extraneous reasons to disregard the public interest, and continue with this deal, I shall have to approach the courts by way of a Public Interest Litigation.      
                                 Warm regards, 
                                                                         Yours Sincerely

                                                                         Subramanian Swamy