SpiceJet and TigerAir collaborate via interline agreement

by Devesh Agarwal

Two budget carriers, India's SpiceJet and Singapore's Tiger Airways, have signed a three-year interline agreement to carry passengers on each other's networks through Hyderabad Rajiv Gandhi airport (RGIA).

From January 6, 2014, SpiceJet customers from 14 Indian cities Ahmedabad, Bangalore, Bhopal, Chennai, Kolkata, Coimbatore, Delhi, Goa, Indore, Mangalore, Madurai, Pune, Tirupati, and Visakhapatnam, can connect to TigerAir's Singapore flights from Hyderabad. From January 12, 2014, TigerAir passengers can connect to destinations on SpiceJet's domestic network.

RGIA, operated by GMR Hyderabad International Airport Ltd. (GHIAL) will be the first Indian airport to facilitate the connecting flights between SpiceJet and Tigerair. The airport will provide a free porter service to facilitate the collection and transfer of checked-in baggage for passengers travelling on connecting flights between the two airlines.

SpiceJet is the first Indian budget carrier to establish such an arrangement with a foreign airline. SpiceJet is offering an introductory promotional fare, starting from Rs 4,699 one way and return starting from Rs 9,998 both all inclusive.

The agreement was concluded by SpiceJet's new Chief Operating Officer, Sanjiv Kapoor, with TigerAir Group Chief Commercial Officer of Alexander Knigge, in the presence of SGK Kishore, CEO, GHIAL

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Air Canada signs agreement to buy up to 109 Boeing 737 MAXs

by Devesh Agarwal

Boeing 737 MAX 9 final concept CGI rendering. Boeing image.

National carrier Air Canada has agreed to buy up to 109 Boeing 737 MAX single aisle narrow body aircraft as part of its fleet renewal plan. Boeing has wrested back an existing Airbus narrow-body customer as the MAXs will replace Air Canada's existing mainline fleet of Airbus A320 family.

The agreement with Boeing, which is subject to completion of final documentation and other conditions, includes firm orders for 33 737 MAX 8 (equivalent to A320) and 28 737 MAX 9 (equivalent to A321) aircraft with substitution rights between them as well as for the 737 MAX 7 (equivalent to A319) aircraft. It also provides for options for 18 aircraft and rights to purchase an additional 30. Deliveries are scheduled to begin in 2017 with 2 aircraft, 16 aircraft in 2018, 18 aircraft in 2019, 16 aircraft in 2020 and 9 aircraft in 2021, subject to deferral and acceleration rights.

With regards to the existing regional jets fleet, the airline said

Air Canada continues to evaluate the potential replacement of its Embraer E190 fleet with more cost efficient, larger narrowbody aircraft that are better suited to its current and future network strategy. Consistent with this strategy, the agreement with Boeing provides for Boeing to purchase up to 20 of the 45 Embraer E190 aircraft currently in Air Canada's fleet. The E190 aircraft exiting the fleet will be initially replaced with larger narrowbody leased aircraft until the airline takes delivery of the Boeing 737 MAX aircraft. The company will be reviewing various options over the next six months for the remaining 25 Embraer E190 aircraft including continuing to operate them or replacing them with a yet to be determined number of aircraft in the 100 to 150 seat range.

Air Canada's plan is for its total fleet including Air Canada rouge™, but excluding aircraft flown by its contracted regional carriers, to grow from the existing 192 aircraft to approximately 214 aircraft by the end of 2019. Air Canada has 13 options and rights to purchase 10 Boeing 787 aircraft, rights to purchase 13 Boeing 777 aircraft as well as the 18 options and 30 purchase rights for Boeing MAX aircraft.

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Kuwait Airways signs agreement to buy A350 and A320neo

By BA Staff

Kuwait Airways Airbus A350-900 CGI

European airframer, Airbus has signed an agreement with national carrier Kuwait Airways to buy 10 A350-900s and 15 A320neos.

A little over two weeks ago, Kuwait Airways had suspended its Chairman for publicly stating an intent to buy five A330-200s from India's Jet Airways.

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Jet Airways and Garuda Indonesia sign code share agreement

Jet Airways and national flag carrier Garuda Indonesia have concluded a code share agreement for connectivity between India and Indonesia.

Under the arrangement, using Singapore as a hub, Jet Airways will place its marketing code on Garuda Indonesia’s flights between Singapore and Jakarta and Garuda will place its marketing code on Jet Airways’ flights between Singapore and Mumbai, Delhi and Chennai.

The two airlines have also signed a frequent flyer partnership, allowing members of each others loyalty programs to accrue and redeem mileage on the code-share flights, the entire domestic network of Garuda Indonesia, and on Jet Airways' complete network, domestic and international.

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dnata selects Amadeus' flight management solution

By BA Staff

Amadeus, announced that dnata, part of the Emirates group of Dubai and one of the world’s largest combined air services providers, will implement Amadeus' Altéa Departure Control’s Flight Management solution in their centralised load control offices (CLC) in Dubai.

The airport ground handler, is now present in 75 airports in 38 countries. The deal spans all Emirates and flydubai domestic and international flights and over 100 other dnata customer airlines using the system.

Under the agreement, Amadeus will provide dnata, which offers ground handling, cargo, travel and flight catering services, with a fully automated solution for managing the weight and balance of all flights it handles from its CLC in Dubai.

This solution is a new generation load control platform designed to enable ground handlers to ensure efficient flight departures and optimise the weight and balance process of all handled flights. It improves the productivity of load controllers, and enables greater precision in the forecast and analysis of passenger and cargo load. The system automatically defines optimal load distribution, thereby optimising fuel requirements for airlines and increasing uplift capacity of aircraft.

Jon Conway, Divisional Senior Vice President, Airport Operations, dnata, said:

“Amadeus’ in-depth experience, vast reach and high level of development will help us gain greater efficiencies through the full automation of our weight and balance system. Furthermore, Altéa Departure Control’s Flight Management enables us to provide our airline customers with significant fuel savings. The system’s community and SaaS elements also allow for greater collaboration with our customers. Altea DCS FM is already showing high performance in a centralised load control (CLC) environment, increasing productivity.”

John Jarrell, Head of Airport IT, Amadeus, commented:

“We are extremely pleased to continue our airport journey having signed the world’s fourth largest ground handler. Amadeus is proud to be part of dnata’s successful growth strategy today and into the future. We are certain this will only be the beginning of a fruitful relationship as we work closer together with this important customer to offer further enhancements in ground handling. This agreement enables us to strengthen our foothold globally, alongside our 50 ground handlers currently using our solutions today.” 

Francois Weissert, SVP & Chief Technology Advisor Middle East and Asia, Amadeus, stated:

“We are very happy to add an important ground handler like dnata to our growing list of customers in the Middle-East region, where we already have agreements in Egypt, Qatar, Bahrain and Kuwait. Amadeus believes in the potential of this region, which has established itself as a global air travel hub over the last few years. Since the creation of our regional head office in Dubai, we continue to invest in this strategic area, growing hand in hand with our customers and the regional travel industry.”

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Jetihad deal finally clears FIPB, but still has long way to go

by Devesh Agarwal

The 24% stake sale by India's Jet Airways to Abu Dhabi's Etihad Airways has been finally cleared by India's Foreign Investment Promotion Board (FIPB), albeit with conditions, after the share holder agreement (SHA) was changed to incorporate the apprehensions of the government of India.

One of the conditions imposed by the FIBP requires prior Government approval before making any changes in SHA. The revised SHA also calls for arbitration under Indian law and not English law as earlier proposed.

The Jet Airways board of directors will have 12 members. Promoter Naresh Goyal with 51% shareholding, post the sale, will have four representatives. Etihad which has less than half of Goyal's holding, 24%, will have two with the right to nominate the Vice Chairman, and there will be six independent directors, all Indians. As Chairman Goyal will also have veto power, though one has to see how he will use it.

A revised Commercial Cooperation Agreement (CCA) has also been submitted and approved, as it says the principal place of business would be Mumbai. Plans for shifting, operations, revenue, and network functions to Abu Dhabi have been scrapped.

Jet has already sold its London Heathrow slots to Etihad to realise desperately needed cash to lower ballooning debt levels. You can also read our initial analysis of the deal. You can also read a quick recap of the Jetihad deal time-line here.

The Jetihad deal still needs three more approvals. The Competition Commission of India (CCI) which is examining the deal, since the CCA calls for Jet to terminate existing code-share and partnership agreements on routes operated by Etihad.

Following the CCI, the deal will go to the Cabinet Committee on Economic Affairs (CCEA) since it involves a foreign direct investment (FDI) of more than 1,200 crore. After which the deal will come to the ministry of civil aviation for approval under the Aircraft Rules, 1937.

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Your opinion: Question of the week: Is Jet Airways too financially weak? What should existing investors do?

by Devesh Agarwal

Majority of Jet's A330 fleet parked at New Delhi's IGI airport

In what is not a very uncommon development, The Economic Times reports, India's financial markets' watchdog, the Securities Exchange Board of India, better known as SEBI, has written to the Foreign Investment Promotion Board (FIPB), the approver of FDI proposals, expressing concern on the agreement to sell a 24% stake by Jet Airways to Etihad Airways PJSC. SEBI feels that the agreement structure allows India's largest private airline by revenue, to pass into foreign hands, which is not allowed as per the existing law.

Over the last one month the deal has been question by various ministries, regulators, boards, authorities, stake-holders, and members of Parliament, amongst others. Putting aside partisan motives, one obvious fact is emerging; the agreement appears to be extremely lop-sided in unduly favouring Etihad. You can read our earlier analysis highlighting some of the lop-sided provisions of the agreement.

While the debate on these provisions continues, we want to question the financial condition of Jet Airways itself. Without doubt, the debt levels of Jet Airways are high enough to be classified as scary.

However, the question at hand is; what insight does this agreement offer in to the situation at the Indian carrier? Is the situation so dire that the promoters of Jet willing to let go of their airline for a mere $379 million? or did Mr; Hogan's team simply out-negotiate that of Mr. Goyal's?

As its possible control of Jet Airways is whittled away, by the regulators, at point would Etihad walk away from the deal? There are already rumblings, that come July 31, the first deadline for the deal, Etihad might reduce the amount of premium it is willing to pay for Jet. In which case, will Goyal still be interested?

And surely, exiting investors must be watching the scene nervously and wondering what should they do? Hold on? Or jump ship?

Share your thoughts via a comment.

Disclosure: Devesh Agarwal is a shareholder in Jet Airways.

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Analysis: Will Jetihad lop-sided deal favouring Etihad be corrected or be an eye-wash?

by Devesh Agarwal

Last week's deferral by the Foreign Investment Promotion Board (FIPB) of the proposal of Abu Dhabi based Etihad Airways to buy a 24% stake in Jet Airways has brought to light how the middle-eastern carrier will have an equal or higher say in the functioning of Jet despite owning just 24%.

The deferral has also shed light on the lack of clarity in the government's rules with regards to permitting foreign direct investment (FDI) by airlines in Indian carriers.

The Economic Times reports, the existing shareholders' agreement between the two airlines is structured in a manner to give Etihad the upper hand in the decision making at Jet. Without giving Etihad any specific rights or veto power, by requiring approval of two-thirds majority of the board for even routine decisions, the agreement equates the 24% owning airline to the 51% owning promoter, Naresh Goyal.

In normal circumstances, under the Companies Act, 1956, two-third majority is only required in matters such as capitalisation and dividend declaration issues. Any joint management of an Indian company automatically invites additional regulatory scrutiny, like from the Securities and Exchange Board of India (SEBI).

Some of the aspects of the agreement that were questioned by the FIPB include

• Re-location to Abu Dhabi and co-location of the network and revenue management functions of Jet
• The vice chairman will be nominated by Etihad but no mention on nomination of chairman's post
• If Goyal ceases to be chairman, new chairman to be nominated by the board, not selected by shareholders
• Chairman will not have a casting vote
• Two-thirds majority approval required for appointment and removal of CEO, independent directors, and senior management, and to pass any resolution in the board meeting i.e. for routine issues, contrary to existing law

Operational control too

Operationally too, the agreement shows how Etihad is dominating its Indian 'partner' right from the word go. The agreement stipulates that Jet will, at its expense, re-locate and co-locate its network and revenue management operations to Abu Dhabi. In the first phase functions that will shift include, international and domestic network planning, international pricing for non-India points-of-sale, and management of joint fare filing, and inventory control of the Abu Dhabi hub routes. In the second phase, all functions will shift to Abu Dhabi, including, international revenue management, domestic scheduling and pricing, international pricing for Indian points-of-sale, and inter-line pricing.

Many legal analysts feel the Jetihad deal has been constructed in this manner to afford Etihad almost complete management and operational control of Jet, while helping the middle east carrier to avoid triggering the 'takeover code'. The code is activated either when the investment crosses 25% of a company's shareholding or when the investing company gains ‘control’ of the target company. It is the definition of ‘control’ as per the Companies Act which is now becoming the bone of contention in approving the deal.

All of this is hardly surprising. Jet was in dire straits when it went around looking for whoever was willing to invest, and has acceded to virtually every condition demanded of it.

Policy confusions

Another legal issue muddling the deal is the word "effective control". The new FDI guidelines allowing for investment by foreign airlines say that 'substantial ownership' and 'effective control' should be vested with Indian nationals. There is confusion since the term 'effective control' has never been officially defined. The Companies Act, SEBI's takeover code, and the overall FDI policy, have defined the word 'control, but are silent on 'effective control'.

To prod the Jetihad deal along, the civil aviation ministry has reportedly submitted a long list of comments to the FIPB clarifying what it means by 'effective control'. A copy of this has been marked to the ministry of corporate affairs (MCA), the final arbiter of all matters related to company affairs.

For the Indian government, plagued by reforms policy paralysis, this is fast becoming a desperate situation. On one hand, to prove the progress of the few new policy reforms it has announced, it is bending almost every rule in the book, even going so far as to plan allowing foreigners to bypass FIPB approval for investment in the country. On the other hand the Jetihad deal is so lop-sided favouring Etihad, approving will set a bad precedent in law, allowing foreign companies to completely disregard the rights of Indian shareholders.

Jet is in a hard place. Its need for funds is desperate and no one can fault Etihad for trying the most bang for its buck. Even with the most intense lobbying, Jet and Etihad will need to re-work parts of the agreement to make it more palatable, but will this be a real change protecting all shareholders or just an eyewash to get this lop-sided agreement through the scrutiny of an equally desperate government?

Please share your thoughts on this subject via a comment.

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