Grounded aviation stocks take off

Shares of aviation companies zoomed on Wednesday after a government panel backed allowing foreign airlines to buy up to 49 per cent stake in debt-ridden domestic carriers. Foreign airlines are currently barred from owning stakes in local carriers.

The Naresh Goyal-promoted Jet Airways, the country’s largest airline, gained the most as its shares jumped seven per cent to close at Rs 203.55 on the Bombay Stock Exchange (BSE). This was followed by SpiceJet, which rose 5.5 per cent to Rs 19.25. Vijay Mallya’s Kingfisher Airlines gained 4.3 per cent to close at Rs 22.

According to civil aviation minister Ajit Singh, the panel’s recommendations would be considered by a ministerial committee before the Cabinet took a decision. He did not specify when. His ministry had earlier proposed a 24 per cent cap.

Analysts said Wednesday’s sharp rally in aviation stocks was purely news-driven. “We are not laying our hands on the aviation stocks. All companies are debt-ridden and in case FDI comes, it would re-rate the sector as a whole,” said the head of research at a Mumbai-based brokerage. Late last year, heads of domestic carriers had met Prime Minister Manmohan Singh and sought government assistance for their financial and operating problems. The country’s large lenders, including State Bank of India, last week classified loans to Kingfisher as non-performing assets.

In the quarter ended September, all three listed entities made massive net losses and registered negative operating profit margins. Jet’s net losses surged quarter-on-quarter to Rs 714 crore from Rs 123 crore in the June quarter.

On a year-on-year basis, the airline slipped into negative territory, from a positive of Rs 10 crore profit in the previous corresponding quarter. On the other hand, Kingfisher’s net losses mounted close to Rs 470 crore and SpiceJet reported Rs 240 crore of loss.

Currently, the debt on airline balance sheets is huge. Government-owned Air India has an overall debt of around Rs 40,000 crore, Jet Airways is struggling with its Rs 13,000 crore, while Kingfisher has a burden of Rs 6,500 crore.