Airlines oppose Rs 8000-crore Tata Group-GIC stake in GMR Airports

IndiGo, SpiceJet, GoAir see undue favour to Vistara; GMR says fear unwarranted

Three major Indian airlines have opposed the proposed Rs 8,000-crore investment by a consortium of Tata Group and Singapore’s sovereign fund GIC in GMR Airports. The GMR Group has, however, dismissed the arguments put forward by the airlines. 

IndiGo, SpiceJet, and GoAir — which control more than 80 per cent of the domestic market — have said that Tata Sons, along with GIC, which has common ownership with Singapore Airlines (SIA), will influence the decisions of GMR Group-owned Delhi Airport in favour of SIA Group airlines, thereby helping Vistara to gain prime airport slots. Vistara is owned by Tata Sons (51 per cent) and SIA (49 per cent).  

“Considering Delhi is the biggest airport in India, the proposed ownership of Tata-GIC becomes a cause of serious concern for us as it will distort the level playing field ,” stated the letter written by the Federation of Indian Airlines (FIA) — the group representing the airlines — to the civil aviation ministry.  

“There should be no doubt that Tata and GIC should be construed as common group entity for Vistara,” it added.

A spokesperson of the GMR Group refuted the airlines’ argument, saying India’s slot allocation guidelines were enough to prevent any distortion to the competitive landscape that might originate from this deal and that Tata and GIC would be passive financial investors and refrain from involving themselves in the day-to-day management of airports.

The Competition Commission of India (CCI), while approving the deal, had raised similar fears, but after getting assurance from the Tatas of non-interference in management gave it the green light.

Slots in Indian airports are allocated by a slot coordination committee of airport operators, according to the Worldwide Slot Guidelines drawn up by the International Air Transport Association. According to these norms, an airline can keep a given slot from the previous season as long as it has used the slot 80 per cent of the time. Also, 50 per cent of slots freed up under this ‘use it or lose it’ policy is provided to new airlines and the rest to legacy carriers. 

“The CCI observes that such relationships between Tata Sons Group and the GMR Group may lead to a scenario of conflict of interest. With this integration, there is an incentive to foreclose the competing airlines. But following the proposed modification, the proposed combination is not likely to have an appreciable adverse effect on competition,” the CCI noted in its order.

According to the submission reviewed by Business Standard, the Tata Group gave an undertaking to the government that it will not appoint any person in key managerial positions and will not be involved in the management of airports owned by GMR Group.

“Both GMR and Tata Group will ensure no commercially sensitive information relating to slot allocation should be directly or indirectly disclosed to our nominees, which indirectly or directly results in Tata Group airlines obtaining undue commercial advantage,” the Tatas wrote on October 1.

Officials of the Airports Authority of India (AAI) said that it had asked SBI Caps to study if there would be any distortion of level playing field due to the investment. “SBI Caps will study the impact and following its suggestion, we will take a decision,” said a senior AAI official.

The airlines’ opposition could be a fresh hurdle for GMR Infrastructure, which is desperately looking to raise funds. The investment proposal announced in April has already been delayed and restructured, after the Solicitor General of India raised objection to Tata Group owning more than 20 per cent stake in GMR Airports, which would have given them a 12.8 per cent stake in Delhi Airport violating the clause that prevents airline groups from holding more than 10 per cent stake in Delhi International Airport (DIAL).

After a tweak in the consortium structure, which had to be done despite the approval of the CCI to the deal, the Tatas reduced their holding in GMR Airports to 14.7 per cent, from 20 per cent planned earlier, while GIC increased its stake to 19.8 per cent, from the original 14.8 per cent. The tweak brought the effective shareholding of the Tatas in Delhi Airport to 10 per cent.

The FIA has, however, argued that both GIC and Temasek are owned by the Government of Singapore and Temasek holds 56 per cent in SIA. Therefore, GIC should also be counted as an entity having ownership in airlines as it would try to protect the interests of SIA Group.

“Whether the investment is made by GIC or Temasek or SIA, SilkAir, Scoot, or Vistara, they all belong to the Singapore government, which establishes the fact that GIC should be counted as an entity having ownership in scheduled airlines and its stake in DIAL should be limited to 10 per cent. Both Tata and GIC’s aggregate shareholding should be limited to 10 per cent,” said FIA.

Ever since Vistara and AirAsia India (owned by the Tata Group) started operations, incumbent airlines have been publicly opposing setting up of the two airlines, saying they are controlled by the foreign joint venture partners and would harm the interests of the Indian aviation industry.

Sources said the fear of GMR Airports being controlled by the Tata Group and GIC was a result of Vistara being favoured over FIA airlines, while granting slots at Changi Airport. “Recently, slots vacated by Jet Airways at Changi were expeditiously allocated to Vistara, while IndiGo, SpiceJet, and GoAir were told that commercially viable slots were not available. It would be unfortunate if Indian airlines have to face such biased treatment in their home country,” said a chief executive officer of an FIA-member airline.

Merger and acquisition experts suggest the airlines’ argument will not be legally tenable. According to the Comprehensive Economic Cooperation Agreement signed between India and Singapore in 2005, India recognises GIC and Temasek as separate entities.

“India, under the treaty, has agreed that GIC and Temasek will be treated as two separate and distinct legal entities and the two entities acting in concert. For any investment in India’s capital markets, India shall regard GIC, Temasek, and their investment vehicles as independent and unrelated legal entities. In 2013, when both the Singapore entities wanted to hike stake in ICICI Bank, the Reserve Bank of India agreed to treat them as separate entities after initial objection,” said an expert on competition law.