What’s deterring foreign airlines holding stakes in Indian carriers?

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September 17, 2012

New Delhi: Despite the government's decision to open the Indian skies, foreign airlines are not too keen to take the plunge and hold stakes in domestic carriers right now. What exactly is holding them back?

September 17, 2012

New Delhi: Despite the government's decision to open the Indian skies, foreign airlines are not too keen to take the plunge and hold stakes in domestic carriers right now. What exactly is holding them back?

Several overseas carriers contacted by IANS and aviation watchers cited high jet fuel cost, an extremely price-sensitive market, huge debt of the carriers and contracting domestic passenger traffic as the reasons.

The government Friday allowed foreign airlines to invest up to 49 percent in private domestic carriers. The foreign carriers have so far not been allowed to directly invest in Indian carriers for security reasons, although 49 percent FDI by non-airline players was allowed.

Analysts say that the foreign partner will focus on bringing in best practices like route planning, technology, operational and financial management to realise their long-term investments. International airline companies welcomed the move, but said there are no immediate plans of investing in India.

Virgin Atlantic and Lufthansa, which are aggressively shoring up market share, said they are not keen on investing in India at the moment and will focus on existing businesses.

Etihad Airways, which has investments in AirBerlin, Air Seychelles and Aer Lingus, said it will wait for all the modalities of the new reforms to be clear.

Sharan Lillaney, aviation analyst at broking firm Angel Broking, told IANS that the foreign carriers are not short-time investors. "No one will announce any plans until all the modalities are fulfilled."

Other industry watchers said the current downturn is an opportunity as the Indian aviation market is one of the fastest growing in the world, despite the recent fall in traffic. Last year it expanded by 20 percent.

The downturn also has made valuations attractive. "Some global carriers may decide to enter now when airline valuations are attractive," Amber Dubey, partner and head-aviation at global consultancy KPMG, told IANS.

"Others may decide to wait and enter at a higher price later."

Dubey said the foreign carriers may invest in new low-cost airlines as a start-up or as a non-scheduled operator. "The strategic options are plenty."

Meanwhile, he said, bold steps were needed for a turnaround in the sector. These include rationalization of taxes imposed on air turbine fuel (ATF) and maintenance, repair and overhaul (MRO) facilities.

Jet fuel prices in India on an average are 40-50 percent higher than that sold globally due to added state sales tax.

Indian carriers are losing around Rs.2,500 crore per year due to high fuel prices with a combined debt of about Rs.48,000 crore.

India also lacks MRO facilities with many airlines flying their aircraft abroad for maintenance, as stocking of spare parts is very expensive due to high taxes.

According to International Air Transport Association (IATA) estimates, the Indian aviation sector would require $140 billion in the next 20 years to keep pace with the growing demand. Other estimates have placed the current fund needs of the sector at $2.5 billion.


Courtesy: IANS (Rohit Vaid can be contacted at rohit.v@ians.in)