The Union Cabinet is set to decide on permitting foreign airlines to pick up 49 per cent equity in domestic carriers. Under the existing rules, foreign investors, other than airline companies, can invest up to 49 per cent in domestic airlines. The move to liberalise the norm has to be seen in the context of the financial troubles that most domestic airline companies are embroiled in, none more than Air India and Kingfisher. The thinking appears to be that easing the norm will enable these troubled airline operators to attract equity investment from foreign carriers. Though this is an infinitely better option than a bailout using public funds, the reality is that there might not be too many takers among foreign airline companies for this. The first reactions from some of them such as Lufthansa, Emirates and Singapore Airlines, purported to have been interested in investing in domestic carriers, only confirm this. They have all said that there is no immediate plan to invest in airline companies in India nor is it an important part of their future plans. Air Asia, a Malaysia-based low-cost operator, has gone a step forward and said that it would rather set up a subsidiary in India than invest in an existing carrier.
Offering 49 per cent equity to foreign airlines is obviously no magic wand to ward off the problems the airline industry is enmeshed in. It might probably help one of the most troubled operators to seek a partner but again, there is no guarantee on that. If the government is keen to rescue the airline industry, there are other things that it could do. It could, for a start, rationalise taxes and duties on aviation turbine fuel, which are at ridiculously high levels. Soaring oil prices have made fuel expensive and the high taxes only add to the burden. Fuel being the biggest item of cost for airlines, any relief on that front will be welcome. Secondly, we need a regulator who will keep his eyes open for sharp anti-competitive practices such as cut-throat fare setting by some players forcing the others to join in a fatal race to the bottom. Thirdly, applications to fly short-haul international routes should be cleared quickly, especially where there is room to do so under bilateral agreements. It is quite possible that despite all such assistance there will still be some airline companies that cannot be rescued mainly due to mismanagement or faulty decisions made in the past. Though it might be tempting to go to their aid with financial assistance, it will be best to leave them to their devices. The last thing the government should do is throw good money after bad, especially when it belongs to the public.
