Cabinet to take up FDI in aviation today

Last Updated: Fri, Sep 14, 2012 04:17 hrs

Tomorrow, after years of uncertainty, the Union Cabinet is scheduled to discuss whether to allow foreign air carriers to invest in domestic airlines. The step is seen as a lifeline for struggling carriers such as Kingfisher, besides opening investment and alliance opportunities in general.

The proposal to allow foreign airlines to acquire up to 49 per cent stake in Indian airlines has been stuck, with the ruling United Progressive Alliance unable to reach a political consensus on this.

Current FDI norms allow any entity other than a foreign airline to acquire equity stake of up to 49 per cent (directly or indirectly) in domestic scheduled airlines.

Though Civil Aviation Minister Ajit Singh would visit Kolkata tomorrow, it is unclear whether he would meet Trinamool Congress chief Mamta Banerjee and convince her against vetoing the government proposal. Since taking charge of the portfolio a few months earlier, Singh has been pushing for reforms in the sector. He has opened more foreign routes for private Indian airlines and relaxed rules on allowing direct import of aviation turbine fuel.

In an interview with Business Standard, Singh had earlier said, “We are definitely in financial stress. But FDI (foreign direct investment) would be coming for other reasons---the growth we have, the potential we have, a growing middle class, traffic rights and the strategic geographical position. It is basically an enabling legislation and it is up to the airlines.” Domestic carriers, led by struggling Kingfisher Airlines, have, for long, lobbied for the move.

Kingfisher hopes it would being in much-needed funds to keep it afloat. SpiceJet is also keen to rope in a foreign airline as an investor and has held preliminary discussions with Gulf airlines.

Amrit Pandurangi, senior director, Deloitte India, said, “I don’t think FDI in aviation would solve all problems. But, definitely, it is a welcome move. Right now, the problem with the aviation sector is profitability on account of high taxes on ATF (aviation turbine fuel), airport charges and keeping fares artificially low. FDI can’t solve that problem. But equity infusion would definitely help airlines scale up operations and expand networks.”

However, opening the sector might not immediately lead to foreign airlines picking up stakes, considering the high taxation and regulatory uncertainties in India.

Among foreign airlines, Gulf carriers such as Etihad, Qatar Airways and British Airways, through its parent company IAG, had earlier evinced interest in investing in India. Others have adopted a wait-and-watch stance.

An IAG spokesperson said, “Our aim is to be a global airline group and we are pleased with any step towards full liberalisation of the aviation industry. India is a key market for us, and we will monitor the changing regulatory environment. But at this stage, we have no plan to invest in any Indian airline.”

An Emirates spokesperson said, “India is one of the world’s most important aviation markets. While Emirates’ philosophy is to focus on organic growth, we always welcome any reform which liberalises markets, including FDI rules.”

“It is our policy not to comment on such speculation. If or when we do make investments of this sort, we will announce those, in line with regulatory and commercial requirements,” an Etihad Airways spokesperson said. “We see equity as a positive reflection of our partnership approach; we will make such investment where we believe the commercial prospects are strong, where we see like-minded business philosophies and where we believe such commitment would be welcomed,” he added.

Singapore Airlines stated, “Unfortunately, we don’t have anything to offer on this subject. Singapore Airlines avoids discussing hypotheticals. This means we can’t provide a view on whether we would if we could.”

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