India Welcomes Foreign Firms to Invest in Local Carriers

Tuesday, 13th August 2013 at 05:39am

With its aviation industry in the doldrums, India now welcomes foreign investments with open arms into the country to resuscitate the ailing airlines which are now in danger of becoming another casualties following the demise of Kingfisher last year.

The Jet-Etihad deal will hopefully inspire other foreign airlines to invest in India's aviation industry. Already, rumors have circulated in the media recently that other foreign airlines have shown interest in acquiring stakes in two other local airlines, GoAir and SpiceJet.

The recent approval by Foreign Investment Promotion Board on Etihad-Jet deal is expected to hasten the issuance of clearance by the home ministry to AirAsia India, the joint venture between Tatat Sons and Malaysia-based AirAsia Bhd., to commence operations before the year ends.

The capital funds from foreign firms injected into the local airlines are seen to stabilize the local aviation industry.

A foreign airline official, who requested anonymity, pointed out that getting clearance in India is quite a challenge for any investors to set up a business. The $900 million deal between Jet Airways and Etihad was left suspended in mid-air for months prior to its approval recently. The purchase is said to be the biggest foreign direct investment in the commercial aviation industry in recent years.

Other foreign airlines are also rumored to have shown interest in acquiring some stakes in SpiceJet and GoAir.

Based on the data acquired from Centre for Asia Pacific Aviation (CAPA), Indian carriers, with the exception of IndiGo, have a combined debt of more than Rs93,000 crore between them as of March 2013. Additionally, they racked up a total loss of Rs10,000 crore during the fiscal year 2012-13. Air India and the now-defunct, Kingfisher Airlines, together, own the bulk of the combined losses with Rs9,600 crore.

Industry insiders revealed that other foreign airlines are keen to invest in start-ups like AirAsia India. A couple of joint ventures may soon form between two other local airlines and their respective prospective foreign partners.

Foreign investments, no doubt, will bail out ailing local airlines from succumbing to further troubles ahead. The foreign capital will help local airlines to stay afloat and remain competitive in their day-to-day operations despite the challenges thrown in their way.

According to industry analyst, India should ease its restrictions in its commercial aviation sector to encourage flow of foreign capitals. The limited foreign ownership and other mind-boggling rules and restrictions in the sector keep foreign investors at bay.

Prior to the amendment of FDI policy in the commercial aviation industry in September last year, foreign ownership was limited up to 24% in any local airlines. It has since been lifted up to 49% which attracted Tony Fernandes to set up a joint venture with Tata Sons to form a local subsidiary of his highly-successful AirAsia empire.

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