The high hopes of ModiLuft's management to pull Lufthansa in as an equity partner appear threatened by a claim from a US consultancy on 40 per cent of the carrier's equity.

ModiLuft has made no secret of its desire to have the German major as an equity partner, ever since early 1993, when the carrier entered into a technical support contract with Lufthansa and leased an initial three B737-200s.

Indeed, Ashutosh Dayal Sharma, ModiLuft's managing director, says Lufthansa is expected to make a decision by May on whether to take a stake of between 26 and 40 per cent. This option was part of a management agreement signed at the end of June last year, confirms Bernd Hildenbrand, a Lufthansa secondee and ModiLuft's senior vice president corporate control, planning and finance. Hildenbrand says: 'Lufthansa wants to see two financial years for ModiLuft in the books' - this ends in May.

A source close to Lufthansa had indicated early last year that ModiLuft owed 'a lot of money' on the Lufthansa technical agreement. This appears to have led to the German carrier pushing for further involvement in the management of ModiLuft. Last June's agreement saw the two original Lufthansa managers joined by Hildenbrand and the SVP commercial Werner Heesen last October.

Lufthansa's decision could be complicated by claims by US consultant Genesis Aviation that it is entitled to 40 per cent of ModiLuft's equity. Genesis served a legal notice on the carrier's chairman Satish Kumar Modi but so far has not initiated legal action.

The document alleges breach of contract and claims that a joint venture agreement signed by the two parties in New York in December 1992 entitles the consultants to a 40 per cent stake in ModiLuft. Genesis further demands the payment of fees, expenses, damages and interest totalling over $3 million, plus 40 per cent of the carrier's profits so far.

Genesis president Dennis Germaske says consultancy work started after an initial MoU was signed in June 1992. Genesis claims it produced a startup plan, hired a consultant to perform on-site research in India, and negotiated the Lufthansa technical services agreement and the lease of the three B737s. Modi allegedly terminated the contract unilaterally in February 1993.

Modi says Genesis 'hasn't got a case' and claims that it refused to accept an offer of $100,000 in full settlement. Germaske concedes he would rather settle out of court. He has the backing of the US Commerce Department and Senator Jesse Helms, chairman of the US Senate foreign relations committee, and Genesis chairman Richard Ford has written to seven Indian cabinet ministers appealing for their support. Modi, however, is a member of one of India's most powerful industrial families with very strong political connections.

Source: Airline Business