India Lifts Block On Foreign Airline Investment
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.