Airline Investment

Neither recommendation makes much economic sense. Barring foreign airlines from owning equity in domestic airlines will prevent not just the flow of much-needed capital into the industry but also that of expertise. As the Modiluft tie-up with Lufthansa showed and it had no equity participation by Lufthansa "" an Indian firm stands to gain a great deal by way of technical and professional training, quality and standard of service, maintenance methods, reservation facilities, and even perhaps code-sharing eventually, even if there is no financial stake involved. And when there is a financial stake, as in the case of Jet Airways in which two foreign airlines own 20 per cent each, the picture is even better. In fact, since Jet Airways already has foreign equity participation, how can the government ban new entrants from inviting foreign airlines from holding equity? Surely, that would amount to discrimination. Any new policy that the government wishes to enunciate must take this into account for, otherwise, it will be get stuck in the courts as potential entrants seek redress.

Such tieups can also lend credibility which, when the need arises, can improve the prospects of raising capital abroad. Sooner or later, the undercapitalised Indian airline companies will have to do so, and having a foreign airline as a partner will only help. Also, leasing from leasing firms becomes easier, as Jet Airways has shown. Two of its jets are on lease from GE Capital on favourable terms. Besides, the worldwide trend is towards tieups, although in recent months some large airlines like Lufthansa have been saying that they are only looking for non-financial alliances. The proposed tie-up between British Airways and American Airlines also does not have a financial component. But BA had earlier invested in US Air and Qantas, and many European airlines have cross holdings in each other, some with non-voting shares.

As the government ponders the issue, it would do well to remember that there is a right way of doing things and a wrong way and the right way is to allow anyone, including foreign airlines, to invest in an Indian airline. There could be an argument about how much to allow 51 per cent or less. After all, even the US does not allow foreigners to hold more than 25 per cent of the equity of an American airline. But that is a matter which is perhaps best left to the potential partners. It doesn't need government intervention, certainly not of the sort in evidence now. This only serves to delay and confuse, which perhaps is the intention after all.