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Will Foreign Airlines be lured to Invest in Domestic carriers?

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The ailing Indian aviation sector could be in for a booster dose if the reports of Indian Cabinet proposing to ease FDI rule, allowing foreign airlines to invest in domestic carriers, are anything to go by. A minimum of 24% FDI provisioning for opening up of India skies to foreign airline companies is being mooted by Civil Aviation Ministry.

Currently, India allows 49% FDI in airline companies; but foreign airline companies are not allowed to indulge in any such investment scheme directly or indirectly. However, if the said proposal goes through, the new policy would fly in with more strategic funds for the cash-strapped airlines industry.

However, a billion-dollar question over here is NOT whether the FDI norms be relaxed or not; but will the foreign airlines be lured enough to invest in domestic carriers, if given an opportunity.

The lure of the Indian aviation sector can be estimated from the fact that the Civil Aviation Minsiter, Mr Vayalar Ravi, has pegged the nation to hit a total traffic of 30 crore passengers by 2020. Thus, India is poised to be among the top five aviation nations in the world over the next decade.

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At the same time, relaxation of FDI rules in the aviation sector would also raise the fears of tighter competition amongst the domestic carriers supported by larger sharks from across the globe, within the Indian skies.

In any case, severe clouds of doubt still surrounds the dilemma as to how productive would the opening up of India skies to foreign airline companies be; given that the sector prospects are clogged with intense competition, high aviation turbine fuel (ATF) prices, and inefficient airport infrastructure support.

Excessive airline capacity, lower average realization and downturn in the global economy have further added to the woes of the airline industry. Moreover, after witnessing the dire situation of the loss making carrier Air India, a striking aspect that comes to fore is the relatively high-cost environment, including regulatory and tax structure impacting the fuel costs, that Indian airlines operate in.

Further, most of the Indian carriers that have accumulated billions of dollars in losses and debts, have so far managed to stay afloat mainly on account of deep-pocket parental backing or governmental support to tide away the crisis temporarily.

Though, low-cost airline is the most preferred service by business and working class people today, not many domestic carriers have been able to cut the ice in this niche category business. This can be determined from the fact that except for IndiGo and Spicejet, no other airline company has been able to sustain in green territory.

India’s largest low fare carrier, IndiGo, posted a profit of Rs.650 crore during last financial year backed by its lower non-fuel and debt servicing costs. Amongst other low-fare carriers, Spicejet made a profit of Rs.101 crore during the year. On the other hand, private carriers such as Jet Airways and Kingfisher Airlines suffered losses of Rs.86 crore and Rs.1027 crore respectively.

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  1. […] Indian Government is planning to bring in FDI in Indian Aviation Sector – Will Foreign Airlines be lured to Invest in Domestic carriers? […]

  2. Altaf Rahman says

    We should look at aviation industry in two areas. One is Airport infrastructure and the other is Air India. Both are pathetic. Now how to make them click?

    Here is my suggestion.

    Call International bids for leasing out Air India lock, stock and barrel for lets say 10 years. As the potential for business is huge in India, I am sure all major Airlines will bid for it. Give them powers to keep or sack Air India staff based on their ability.

    This will make the asset (why I am calling it an asset is it is not Air India anymore but a part of International airlines) start performing. This turn around can be due to many factors. It can be logical reorganization, modernization, optimization of equipment or international training for the remaining staff.

    For those who got sacked, instead of golden shake hand, give them some appartments in metros. The logic behind this is anyway termination benifits have to be given, otherwise these non performers will keep on making loss to the asset. Giving appartments will make the ex employees from becoming homeless as there will be families depending on them. This will give a small boost to the sagging real estate sector too.

    Now while the Airline is being leased out, it will keep generating revenue for the govt on anual basis (lease amount per anum). Use this money to modernize Airport infrastructure in all Airports. Slowly bring all infrastructure to world class level.

    At the end of 10 years, the lease agreement can be halted and again govt can take back and Air India can be revived back. This time with the infusion of international training, modern technology, the Air India will not be the same. It is straight from James Bond movies.

    We have solved all core problems with this arrangement. We solved financing problems for Airport infrastructure, we have thrown out a pathetic national asset and got back a brand new asset, we have taught hardworking sincere staff in international practices.

    All it requires is parting with Air India for about 10 years.

    Can you bear living with out Air India for 10 long years ? I can :)

    Just my two paisa :)

  3. Prateek Praveen says

    In my opinion if executed it would be a welcome initiative and a big push for the Indian aviation sector which is currently reeling under the massive debts and weaker infrastructure and at the end of the day it will be in the interest of the customers .

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