India Lifts Block On Foreign Airline Investment

AIN Air Transport Perspective » September 24, 2012
Analysts consider Chennai-based Spice Jet a likely beneficiary of India’s relaxation of restrictions on foreign investment in its airlines.
September 24, 2012, 12:20 PM

The Indian government has finally given in to demands to ease restrictions on foreign direct investment (FDI) in the country’s struggling airlines. The unexpected September 14 announcement clears the way for foreign carriers to take up to a 49-percent stake in Indian operators, with the exception of government-owned Air India. However, industry and financial analysts indicated to AIN that they view the policy U-turn cautiously, warning that it won’t necessarily mean salvation for cash-strapped carriers.

“We expect FDI would be long drawn process and valuation would be concern for most of Indian promoters [airliner owners] due to poor profitability history and regulatory nature of business,” commented Antique Stock Broking analyst Vikram Suryavanshi. Foreign airlines may not invest automatically and will need to get clearance from the civil aviation ministry and Foreign Investment Promotion Board. Also, according to India’s 1937 aviation rules, three quarters of airline board members and the chairman will have to be Indian citizens.

Chennai-based SpiceJet appears the most likely candidate to attract foreign investment, according to Jasdeep Walia, analyst at Kotak Institutional Equities. “In our view, SpiceJet would be the biggest beneficiary,” said Walia. “Jet Airways won’t gain as it is already in violation of FDI norms, as the promoter [with an 80-percent stake] is classified as an overseas corporate body [and hence comes under FDI]. In our view, Kingfisher [because of large liabilities] and Indigo [because foreign ownership reportedly has reached 48 percent] also won’t gain.” Walia added that privately owned GoAir might stand as a good FDI target.

India-born Tony Fernandes, founder of Asia’s largest budget carrier, AirAsia, has made clear his desire to invest in India. In response to the FDI announcement, he commented via Twitter: “Fantastic news that India has opened up investment to foreign airlines. With Malaysia opening up, this is fantastic news for airlines like AirAsia.”

“While drivers for growth are already present in India, the financials of airlines are in a mess and there will be a lot of work to do, including adoption of best practices,” concluded Rattan Srivastava, a director with consultancy Frost & Sullivan.

FILED UNDER: 
Share this...

Comments

No Avatar
Nathuram
on October 13, 2012 - 8:11pm

Red tape at the government level needs to be cut and cut drastically first. Union involvement in the sector also needs to be curtailed if the airline sector is to survive efficiently and without large infusions of government cash.

Outsourcing of each individual service in the sector with direct management input and government regulator oversight for safety into each component of the business that is outsourced will increase competition and efficiency.

At present there is no discipline in the sector. No management styles capable of motivating staff or leading airlines which face enormous volatility from fuel prices shifts, labour unrest, demands for higher wages and a skills shortage.

Opportunists like Tony Fernadez should only be allowed to invest and not run airlines in India. His threats to the government that fed his success, Malaysia, to relocate to a disgraceful aviation regime like Indonesia is cause for concern. Fernandez is a Trojan Hose for Sir Richard Branson.

There needs to be a one stop shop at the ministry for aviation to vet then approve licenses for operators from India and abroad. NRI's too have to be allowed to operate like with the same privileges and rights as local citizens would. This is because NRI's bring in the much needed management and technical skills and are a significant contributor to the economy with their foreign funds into India.

Right now Indian Airlines and the national flag carrier Air India need to be privatised with the government holding that golden "veto" share. Why can't India emulate Singapore in this regard? Its not rocket science. Even if it were, we have rocket scientists in India don't we?

Get rid of the Babu and the political party preferential systems and jail corrupt officials.

No Avatar
Nathuram
on October 13, 2012 - 8:11pm

Red tape at the government level needs to be cut and cut drastically first. Union involvement in the sector also needs to be curtailed if the airline sector is to survive efficiently and without large infusions of government cash.

Outsourcing of each individual service in the sector with direct management input and government regulator oversight for safety into each component of the business that is outsourced will increase competition and efficiency.

At present there is no discipline in the sector. No management styles capable of motivating staff or leading airlines which face enormous volatility from fuel prices shifts, labour unrest, demands for higher wages and a skills shortage.

Opportunists like Tony Fernadez should only be allowed to invest and not run airlines in India. His threats to the government that fed his success, Malaysia, to relocate to a disgraceful aviation regime like Indonesia is cause for concern. Fernandez is a Trojan Hose for Sir Richard Branson.

There needs to be a one stop shop at the ministry for aviation to vet then approve licenses for operators from India and abroad. NRI's too have to be allowed to operate like with the same privileges and rights as local citizens would. This is because NRI's bring in the much needed management and technical skills and are a significant contributor to the economy with their foreign funds into India.

Right now Indian Airlines and the national flag carrier Air India need to be privatised with the government holding that golden "veto" share. Why can't India emulate Singapore in this regard? Its not rocket science. Even if it were, we have rocket scientists in India don't we?

Get rid of the Babu and the political party preferential systems and jail corrupt officials.

Please Register

In order to leave comments you will now need to be a registered user. This change in policy is to protect our site from an increased number of spam comments. Additionally, in the near future you will be able to better manage your AIN subscriptions via this registration system. If you already have an account, click here to log in. Otherwise, click here to register.

 
X