Web analysis: Why FDI in Indian aviation may not take off

Domestic carriers are likely to ask for a very high premium for a stake in their businesses, but may not want to part with control

The euphoria over FDI in airline has the potential of turning into a damp squib. A Bloomberg report quoted Tim Clark, President, Dubai-based Emirates, as saying that the airline wouldn’t invest in Indian carriers unless the government there gave ultimate control to outside investors.

Clark has hit the nail when he says that removal of a ban on foreign stakes will not, in itself, be enough to persuade Emirates to bid, given the limited influence on offer versus the poor financial records of Indian airlines and the prices likely to be demanded. What is true for Emirates is also true for other airline companies looking to invest in India.

Business Standard had, in an earlier article on SpiceJet, argued that Indian companies would be asking for a very high premium for a stake in their businesses, but would not be willing to part with control.

Clark points out that “If we put money into an Indian carrier and then said we wanted to take down the labor force by 50% would they let us do it? No. If we wanted to drop airports that were uneconomic, would they let us?  Probably not.”

What Clark is highlighting is that Indian companies only want foreign airlines’ money and not their advice. They would like to continue operating in their old way, draining shareholders money in the process.

Emirates was expected to be the ‘knight in shining armour’ whom other international players would have replicated by investing in India. The airline has made it clear that this is no longer going to be the case.

Any investor coming in with the bag of money would be interested in picking up stake in a bleeding company only if he is offered mouth-watering valuations along with a significant say in running the operations.

With Indian banks ruling out any restructuring of loans to airline sector, and strategic investors willing to put in money only on their terms, domestic airline companies look set for a crash landing.