By : V. Sraavya Rajasri Kumar ( Intern, Atharva Legal LLP )

08 June, 2019

Services such as Frequent Flyer and Benefit Programmes have become a crucial part of most Airline company’s strategy. The air travel industry offers a wide range of bonus or discount programmes under which participants are rewarded with free travel, service benefits and other privileges. In civil aviation, loyalty programmes are often referred to as frequent flyer programmes or FFPs. This topic has become relevant in recent times due to the issue of Etihad investing in Jet Airways Airlines and taking stakes in their Jet Privilege Program. This step was taken in the year 2014 wherein Etihad bought a 50.1% stake for $150 million at the Jet Privilege Private Limited leaving Jet Airways with a 49.9% stake in the same. The primary contention is if the FDI norms were violated during this process. Further, if Etihad had secured the necessary approvals from the erstwhile Foreign Investment and Planning Board (FIPB) for making the investment (FIPB ceased to be in existence in May 2017)

The foreign investment laws in India currently prohibit a shareholding exceeding 49% in most of the sectors. Etihad was able to buy the shares in this case because apparently they classified such a privilege system under ‘Air Transport Services’ under the FDI Regulations. This category allows more than 49% investment through an automatic route. Hence there is some ambiguity regarding the nature of such privilege services and whether they do fall under the air transport services column.

The same is being investigated by the Enforcement Directorate currently. The term Air Transport Service has been defined within the FDI Regulations, 2017 under rule 5.2.9.3 (iii) as “a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights.” Now the jet privileges programme includes facilities like jet miles which indeed help the flyers get benefit on the ticket of flights and accelerate the route to even free flights along with other benefits such as hotel bookings and up-gradation. Currently, the Enforcement Directorate (ED) is waiting for an official complaint by lenders to Jet Airways against the cash-strapped airline and its former promoter before initiating action against them.