A Canadian court has ordered the seizure of cash collected by the International Air Transport Association (IATA) on behalf of Air India and the Airport Authority of India (AAI). The situation relates to a claim by Devas Multimedia Private Investment against the Indian government, with Air India and the AAI seen as the ‘alter ego’ of India.
Air India and AAI money seized
Despite new hope blossoming for Air India following its sale to the Tatas, financial issues continue to plague the airline. Shareholders in Devas Multimedia have sued the airline in a bid to recover money that the firm won a settlement against the Indian Government. Describing the airline as the ‘alter ego’ of the government, Devas began pursuing the settlement back in June, and was noted to be seeking more than $1.5 billion.
Following months of petitioning courts, Devas won two separate orders on November 24th and December 21st to enforce arbitration awards against India. According to Business Standard, the Superior Court in Quebec granted orders to seize assets belonging to both Air India and the Airport Authority of India (AAI).
Specifically, the court ordered monies held by the International Air Transport Association (IATA) to be seized on behalf of Devas. So far, around $6.8 million of AAI cash has been seized, while the amount belonging to Air India has not yet been disclosed. Matthew D McGill, partner at Gibson, Dunn & Crutcher and lead counsel for several shareholders involved in the case, told Business Standard,
“We will pursue the Indian government in courts worldwide to ensure the debts owed to Devas are satisfied. Our action in Canada has resulted in millions of dollars garnished by Devas shareholders, and represents the first fruits of a globally-focused effort to be paid.”
IATA told Simple Flying,
"As part of a commercial dispute between various parties in India, IATA has been served a third-party garnishment order on funds IATA may be holding for and on behalf of specific Indian entities."
The Association noted that it was not in a position to add further comment given the legal nature of the situation.
The middle man
IATA acts as a middle man in many airline and airport transactions. Through its billing and settlement plan, the association collects funds from ticket sales and route navigation charges, making it easier for airlines, travel agents and other parties to do business on a global scale. IATA pays out the ticket sales to the airlines, and fees collected in relation to route navigation to the airports authority.
In the case of India, the charges collected by AAI for route navigation and terminal navigational and landing charges accounts for around a quarter of all AAI’s revenue per year. In 2019/20, AAI collected a total of Rs 3,592 crore ($483 million).
For Air India, using global distribution systems (GDS) like Amadeus or Travelport for ticket sales is crucial for its business. According to Business Standard, more than half of its revenue comes via GDS, which is then linked to the billing and settlement plan at IATA. When the order to seize assets was passed, Air India reacted by removing all its ticket inventory from GDS.
Although the ticket inventory has been replaced on GDS since mid-last week, Air India is currently only accepting payments by credit card. A credit card transaction takes place directly between the airline and the bank, with no monies held by IATA as part of the process. Conversely, cash payments involve a bank transfer to IATA for ticket sales.
Although Air India is moving to protect its payments, the move to block cash payers will be unwelcomed in many of its markets. Only three in 100 Indians have credit cards, and many will be reliant on paying with cash to get their travel underway. Nevertheless, the situation with Devas is unlikely to affect the airline’s sale to Tata, which is set to go ahead in the coming weeks.