Even if the government allows foreign direct investment (FDI) in aviation, there’s unlikely to be a deluge.
‘’The whole thing has been blown out of proportion. Not more than three to five foreign airlines will be keen on picking up stakes in Indian carriers,’’ says a Mumbai-based investment banker, who has worked on multiple airline deals in India.
The government is planning to allow foreign carriers to own up to 49 per cent equity in Indian carriers. A decision was deferred today to next week, for more discussion.
Foreign airlines which could be interested in taking stakes in Indian carriers are Etihad, Qatar Airways, British Airways (BA) and Singapore Airlines (SIA). This is based on their investment record and known intention to invest in the Indian market.
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Etihad has taken 29 per cent stake in Europe’s third-largest budget carrier, Air Berlin. Qatar Airways has bought 35 per cent in a Luxembourg-based cargo airline, Cargolux International. Both Qatar and Etihad like to take minority stake in airlines where a good management is in place. They both have huge capacity induction plans and don’t want to spare management resources to run another airline.
Among European carriers, BA would be the most keen to buy into an Indian carrier, given its interest in India and the growth in West-bound traffic from here. With Kingfisher Airlines’ entry into the Oneworld Alliance uncertain, BA would like to protect its turf by entering into a strategic alliance with another Indian carrier.
Lufthansa had helped ModiLuft take wings in the early 1990s but investment banking sources say the airline has zero interest in India, given the competition, irrational behaviour in the Indian market and its bitter experience with ModiLuft. American carriers are also not interested.
Cash-rich SIA, which at one point was keen on entering the Indian market with the Tatas, could be interested in Jet Airways. ‘’Naresh Goyal looked up to SIA as a model airline and a lot of SIA hands used to work for Jet,’’ says Steve Forte, former CEO of Jet and a US-based consultant. He says even BA would be keen on Jet, as the two could explore lots of synergies and save costs. For instance, Jet could offer ground-handling and engineering support to BA flights in India and BA could offer the same in Europe. Or, the two could source spares for their common fleet. ‘’A lot of this can also be achieved through commercial agreements, code share flights.
Interest levels would also depend on the extent to which India’s frees investment norms or tries to squeeze airlines by putting lot of conditions,’’ says Forte.
Emirates is another major airline that could be interested in taking stake in an Indian carrier but experts don’t think it would. ‘’Emirates will never come here, though it generates huge business from India (operates 187 flights a week, to 10 Indian cities). It bought Air Lanka and had a horrible experience. It sold it back to the Sri Lankan government,’’ says the banker quoted earlier.
Why & where There’s interest as India as it is the fastest growing aviation market, with a compounded annual growth rate of 18 per cent. There’s considerable traffic between India and West Asia, and India and Europe and North America. Airlines from West Asia and Europe are keen to win some of this, which can feed their flights and hubs.
FDI in aviation will allow cash-strapped domestic airlines to access funds more easily. Indian airlines have been battered by rising fuel costs, high taxes and fierce competition, in a market where five of the six airlines are losing money. Kingfisher and GoAir are in favour of FDI but Jet Airways and IndiGo oppose it.
Foreign carriers would be most keen on Jet Airways, which also has some international operations, IndiGo, SpiceJet and even Air India, now trying to make a come-back. The government plans to infuse Rs 30,000 crore in AI in the next nine years to aid its restructuring.
Experts say Kingfisher may find it difficult to attract an investor. ‘’I don’t see any airline investing in Kingfisher unless Vijay Mallya has some ace up his sleeves. Kingfisher has gone beyond the point of return. Once you lose the confidence of the market, it is very difficult to get it back,’’ explains Forte. That will be the biggest irony of FDI in aviation, as Mallya lobbied the most for it.