As the centenary celebrations (1911-2011) of civil aviation in India taper off, all the airlines recently faced a rap from the aviation regulator for cutting corners on safety-related issues due to mounting losses and perceived lack of funds but the carriers can heave a sigh of relief as the government on Tuesday decided to consider allowing foreign airlines pick equity in Indian airlines.
With almost all Indian carriers, including state-owned Air India, battling hard to tide over their losses, whether the permission, if granted, to foreign airlines to pick up 49 per cent stake in Indian airlines will be able to do wonders to the sagging civil aviation sector in the country remains to be seen.
As per the existing norms, foreign airlines, if allowed, will be able to pick up to 49 per cent stake in publicly quoted carriers, aviation analysts say. In such a scenario, only Jet Airways, Kingfisher and SpiceJet would qualify. Other private carriers such as GoAir and IndiGo are completely privately-owned.
Norms of the Securities and Exchange Board of India (SEBI) will also be applicable to foreign airlines, meaning they would need to pick up shares of the Indian carriers from the open market as well. Given the fragile state of financial health of Jet Airways, the largest private carrier owned by Naresh Goyal who still holds 80 per cent shares, and Vijay Mallya-promoted Kingfisher, it would be anybody's guess as to which foreign airlines would wholeheartedly invest in them.
“Even if foreign airlines come forward to pick up stake in Indian carriers, they should also be ready to pick up debts and other liabilities. Will they be in a position to do so?'' a civil aviation expert posed the question.
According to a document of the Planning Commission on the aviation sector for the XII Plan, more funds, technical knowhow and global access can be unlocked by allowing foreign players to take equity stake in Indian carriers. However, it said that a consensus on the issue ‘needs to be developed at the earliest'.
A handful of aviation experts said the government move would provide the much-needed relief to the ailing Indian carriers. “It would provide access to global routes, managerial expertise and synergy benefits. It brings us closer to the vision of making India a global aviation hub a la Dubai and Singapore.
The current losses of the airlines make the valuations attractive,'' felt Amber Dubey, Director (Aviation) at global consultancy firm KPMG.
Welcoming the proposal on similar lines, Ankur Bhatia, Executive Director of Bird Group, warned that the fresh equity should not be used to meet the losses or debt burden of the cash-strapped Indian carriers.
Rajiv Chib, Associate Director in PricewaterhouseCoopers, said it would allow infusion of funds as the situation was becoming serious with banks demonstrating their unwillingness to pick up equity or give loans.
However, others were of the opinion that strict rules against allowing foreign airlines to enter the domestic airline sector were formulated with serious concerns. The Federation of Indian Airlines (FIA) has also favoured the current policy disallowing foreign airlines to invest in Indian carriers.
“In a global environment where restrictive foreign ownership in the airline industry is the norm, not allowing foreign carriers to invest protects Indian carriers for being targeted for acquisition, the FIA had said.The FIA pointed out that “sovereignty and national interest are usually the reasons that most countries do not allow fair free open-market competition in their respective airline industries.''
The current FDI guidelines state that no Indian airline operator would enter into an agreement with a foreign carrier giving the latter “the right to interfere in the management of the domestic operator or to have effective control in the management.''