India Seeks U.S. Investment To Boost Aviation Sector

 - December 5, 2011, 9:15 AM
Hyderabad Airport in India could benefit from increased foreign investment.

With its economic growth slowing, India is urging U.S. companies to invest in its aviation industry. At the recent U.S.-India Aviation Summit in New Delhi, Indian civil aviation minister Nasim Zaidi urged American firms to back plans for some $130 billion in investments over the next 10 to 15 years airport infrastructure, maintenance, repair and overhaul facilities, cargo facilities and training centers.

The Indian government is willing to see some 30 airports developed under joint ventures or public private partnerships (PPP). The country already permits 100-percent “foreign direct investment” (FDI) in airport projects and some 41 airport projects are already being conducted under PPP terms. But now, with its domestic airline sector facing severe financial problems, the government seems ready to lift the existing 49-percent limit on foreign direct investment in the country’s domestic carriers.

While foreign airlines are still completely barred from investing in the sector, the Ministry of Civil Aviation is proposing to allow 24 percent of equity to be open to overseas carriers. The Department of Industrial Policy and Promotion is advocating that this limit be increased to 26 percent. The proposals are due to go to the cabinet for approval before year-end.

“Opening 24 percent FDI is of little use,” Kapil Kaul, CEO for South Asia with the Center for Asia Pacific Aviation, told AIN. “It should be a minimum of 26 percent. India’s aviation industry is robust for the next five years. Domestic segment will grow annually at 15 percent and international traffic will grow at 12 percent. But the sector is profitless at the moment and requires tax cuts by the government and restructuring by the airlines.”

Indian domestic airlines carried a total of 490 million passengers from January to October this year, an 18.3-percent increase over the corresponding period in 2010. According to Zaidi, the government is prepared to aid aviation growth by creating infrastructure. His department is also planning to appoint an aviation ombudsman to help the sector.

India and the U.S. recently signed the Implementation Procedures for Airworthiness Agreement (IPA) as part of the Aviation Safety Agreement. This should streamline the process for importing aerospace products.