On March 21, 2015, the board of directors of low-cost airline AirAsia India met for the 11th time at Hotel Novotel in Hyderabad. Several matters were discussed at the meeting, but one particular issue stood out.
Under “Agenda Point Number 4 of Business and Operational Update”, presented by the then CEO Mittu Chandilya, there was a “particular discussion on regulatory updates”. The vital regulatory update, according to company documents that
CNBCTV18.com reviewed and confirmed with three people deeply familiar with the matter, related to route dispersal guidelines (RDG) and the 5/20 rule for eligibility to fly abroad. “Various options and scenarios to meet the eligibility criteria were presented and discussed at length,” noted the board resolution.
Soon after, AirAsia India, a joint venture between the Tata Group and AirAsia Bhd of Malaysia, engaged HNR Trading PTE Ltd, a Singapore-registered entity to assist its “regulatory and corporate affairs liaising”.
The attempts of HNR Trading and AirAsia to ease Indian aviation rules were thrust into the spotlight on Tuesday when the Central Bureau of Investigation (CBI) launched a case against the airline, its Malaysian parent, and senior executives, including group chief executive officer Tony Fernandes, among others. CBI has charged the entities and executives with allegedly entering into a criminal conspiracy with the previous UPA government to secure rights to fly abroad.
“During 2015-16, AirAsia remitted about Rs 12.28 crore to M/s HNR Trading Ltd, Singapore (co-accused) for a sham contract on the basis of a bogus agreement on plain papers, which was utilised for paying bribe to unknown public servants of Indian government and others for securing permit for operation of international scheduled air transport services,” stated the FIR filed by the CBI.
Rules Did Change Eventually
The 5/20 rule prohibited new airlines from flying internationally until they acquired 20 aircraft and completed five years of operations. Fernandes had previously frequently demanded the government scrap the rule. Route dispersal guidelines (RDG) are a government push to connect remote locations and airlines typically resist because many of these routes run up losses.
In June 2016, the government partly scrapped the 5/20 rule, retaining the 20 aircraft eligibility condition to fly international and tweaked the RDG to make it more transparent under a new aviation policy.
The aviation ministry is consulting airlines to further relax RDG because several are still unhappy.
This is the second time that HNR Trading has received attention in the press and in similar light. In October 2016, former chairman of Tata Group Cyrus Mistry wrote in a letter to directors of Tata Sons that a forensic investigation revealed fraudulent transactions of Rs. 22 crore involving non-existent parties in India and Singapore. The investigation by Deloitte Touche showed that payments of about Rs 12 crore were made to HNR Trading for “government/regulatory framework” but there was no evidence of actual services being provided.
AirAsia India has denied any wrongdoing and said on Tuesday that it is cooperating with all regulators and agencies to present the correct facts. “In November 2016, AAIL had initiated criminal charges against its ex-CEO (Chandilya) and had also commenced civil proceedings in Bengaluru for such irregularities,” the airline said in a statement quoting director Shuva Mandal.
Fernandes, AirAsia India and Chandilya did not comment for this article.
The HNR-AirAsia India Connection
Though HNR Trading was engaged for “regulatory and corporate affairs liaising”, a euphemism for lobbying, the company has no history of such activity. Filings with the accounting and Corporate Regulatory Authority (ACRA), the regulator of business entities and public accountants in Singapore, show value added logistics and general whole trade as the principal activities of HNR.
HNR was incorporated on September 27 2012 with a paid-up capital of $50,000. The shareholders are Hameed Noor, a Singapore citizen, and Rajendra Dubey, the former head of Globe Air Cargo India, a cargo general sales and services agent (GSSA) and part of the ECS Group.
Globe Air Cargo India was announced as AirAsia India's agent in July 2014 and the contract ended in November 2016. Dubey resigned as Globe Air Cargo India head after the Deloitte report surfaced in the media. He had previously denied allegations in the Deloitte report that he was a lobbyist for Chandilya, or AirAsia India.
Dubey, who too is
named in the CBI case, declined to comment.
Tata Sons, the holding company of the Tata group, and AirAsia Bhd of Malaysia own 49% each in AirAsia India. AirAsia India chairman S Ramadorai and director R Venkataramanan own the remaining 2%.
Despite the relaxation of the 5/20 rule, AirAsia is yet to show an urgency to fly abroad. Aviation analysts have attributed this to the airline’s long struggles in India.
The airline, which has 17 planes, is making losses and is yet to break even. It has just over 4% share of the domestic passenger market and been hobbled by a procession of exits by people in vital roles such as engineering, cargo, HR and security as well as a bitter shareholder dispute in 2015.
The AirAsia India board has also seen a churn since inception. It now has three independent directors namely, Ashok Sinha, a former managing director of oil company BPCL, former aviation secretary M Madhavan Nambiar, and retired bureaucrat Maya Swaminathan Sinha. The Tatas are represented by Ramadorai, chief financial officer Deepak Mahendra, R Venkataramanan, and Mandal. AirAsia Bhd has Fernandes, AirAsia India CEO Amar Abrol and Bo Lingam on the board.Mandal, group general counsel at Tata Sons, was named director on May 21.