POLITICAL ISSUES REGARDING THE DEAL

The proposed investment by Abu Dhabis state carrier, Etihad Airways, into
the Indian airline, Jet Airways, had faced several roadblocks.One of them
was political rumblings.
It would have marked the first overseas entry into the Indian aviation
industry since the Indian government upped the limit on FDI in the sector
last September to 49 per cent. But since the Foreign Investment Promotion
Board (FIPB) delayed its decision, there had been concerns over the fate of
the deal.
Just days before this deal was announced, the Indian government upped
seat entitlements between India and Abu Dhabi in other words, it
increased the number of seats that could be offered per week between the
two destinations.
The cap on seats was to be tripled from around 13,000 to over 50,000
over a three-year period.
With Etihad then agreeing to pay Rs754.7 per share, a 32 per cent
premium at the time, for Jet Airways, there were suspicions that it was
pricing in the increased seat entitlement as if that was part of the deal.
To head off rumors the Prime Ministers Office put out a statement on
saying the deal was being handled in the proper manner.
With less than a year to go before general elections in India, this proved
the perfect opportunity for the opposition Parties to pipe up.
This deal is mired in all kinds of controversies, one of the opposition
leader said adding that an inquiry by the Central Bureau of Investigation,
led by the Supreme Court, should look into the deal making process.
The other allegation was the was just another way of compensating for
bribes paid by Etisalat to Indian politicians for the 2G spectrum license
The investment [by] Etihad has nothing to do with the need of Jet Airways
but in fact a sop offer by the UPA to the Sheikh Amir of Abu Dhabi .As one
of the other leader of opposition party said .The Sheikhs other company
Etisalat Telecoms license, which was illegally obtained from Shahid Balwa
of Swam Telecom, was cancelled by the Supreme Court caused a loss of
about $1 billion to him. To compensate for the loss, UPA government
decided to quadruple the air space provided and thereby reduce Indian
airport as feeder airport of the UAE.
The objections to the deal were first raised by a Parliamentary Standing
Committee headed by CPI(M) MP Sitaram Yechury, which was followed up
by senior MPs, Jaswant Singh and Dinesh Trivedi, and Janata Party chief
Subramanian Swami, who shot off letters to Prime Minister Manmohan
Singh.
The Prime Minister had then referred these concerns in a communication
to the various Ministries, including Civil Aviation, Commerce and Finance.
Replying to a volley of questions on the objections raised by the MPs and
the parliamentary panel, he said, "It is good that the Prime Minister wants

the Cabinet to discuss it." Asked whether his Ministry could oppose the
deal, he said, "There is no question in that."
"The issue is, it's a political thing. Basically elections are coming. They
have been attacking day in and day out, this minister and that minister.
But I wished that they had checked their facts," Singh said.
External Affairs Minister of that time Salman Khurshid had said that the
deal was being
examined. "The FIPB has to approve any such deal and sometimes they
ask for clarifications. I don't think any deal has halted. It is being examined
as normally any deal has to be examined. Against the backdrop of
objections by some MPs, Civil Aviation Minister Ajit Singh strongly
defended the Rs2,058 crore Jet-Etihad deal, saying those opposing it were
"long on politics and short on facts. It is such an important deal..., the
first big deal in Civil Aviation Ministry. In terms of FDI, it is bigger than any
other deal this year. There are so many dimensions to it. Those opposing
the deal are long on politics and short on facts," Singh said.
The PMO raised following issues :1. Although ministry of external affairs and ministry of commerce support
this substantial enhancement (40,000 seats per week), the Department of
Economic Affairs (DEA) had reservations in the past on the enhancement.
2. It has been reported in the media that some airlines have opposed the
request for enhancement.
3. It is also likely that private airport operators would not be supportive of
this enhancement as they have invested substantial amounts in the
airports at Delhi, Mumbai, Bangalore and Hyderabad and would like these
to develop as hubs for air traffic.
4. One of the effects of this enhancement would be that long-distance
traffic from India to Europe or North America would be diverted to Abu
Dhabi.
5. There is a possibility that if, as reported, an Abu Dhabi airline acquires
Jet Airways, this entity would control the bulk of the seats on this route.
6. There is possibility that other countries may also make similar requests.
7. Hence a calibrated approach may be necessary.

After this, Ajit Singh assured the PM that all these concerns were
considered while arriving at the enhancement. His considered view was
that these concerns would not have any adverse impact on the Indian
aviation sector. The minister was of the view that the additional capacity
would enhance traffic to AAI airports where AAI has invested substantial
funds in capacity enhancement. While allocating additional entitlements,
requests of all domestic airlines would be kept in mind. The minister
stated that the air traffic market was growing rapidly and there would be a
need to enhance entitlements in any case. In addition, he felt that the
overall context of liberalising FDI in civil aviation needed to be kept in
mind. Concerns would also be addressed by phasing out the
enhancement,
Anand Sharma who was commerce minister also mentioned
attracting large volumes of FDI and FII from Abu Dhabi to India
during the meeting. The note says, His (Sharma's) view was that Abu
Dhabi currently has one of the largest Sovereign Wealth Funds in the world
and it is in our interest to take steps to attract these funds to India.

The finance minister and external affairs minister were in agreement with
and endorsed the views of the other ministers. On the basis of the above,
it was agreed to give an in principle go-ahead to the negotiating team as
per the formulations (40,000 seats per week), the note says.

Prime minister Singh, then directed that the matter may be brought to the
Cabinet for a decision before operationalizing any agreements that may be
arrived at by the government with the other party.
However, this decision was implemented within 48 hours and on 24th
April the bilateral agreement between India and Abu Dhabi was signed.
Soon after signing the bilateral, the long-pending deal between Jet and
Etihad was also signed on the same day.

It is therefore obvious that the consideration to be received or received by

Jet Airways was clearly linked and co-related to the value of the bilateral
that Abu Dhabi was receiving along with its investment in carrier. The sole
beneficiary of the largesse of this bilateral deal was Naresh Goyal and Jet
Airways.