New Delhi: India took another step towards allowing foreign airlines to invest in the country’s airlines with the department of industrial policy and promotion (DIPP) getting ready to move an inter-ministerial consultation paper on allowing the former to pick up to 26% stake in the latter after commerce and industry minister Anand Sharma clears the proposal, according to the department’s secretary R.P. Singh .
Singh said on Monday that the aviation ministry has communicated its approval to DIPP, although that ministry wants a cap of 24% .
It couldn’t immediately be ascertained when the aviation ministry sent in its approval. Singh didn’t say when a cabinet note on the issue would be moved.
Newspapers reported on Monday that the Union cabinet would take a final decision on the foreign direct investment cap, quoting an unnamed DIPP official.
India allows foreign investment of up to 49% in Indian carriers, but foreign airlines are not allowed to invest directly or indirectly in domestic carriers.
Aviation minister Vayalar Ravi said on Friday that some Indian carriers have been pushing for this but did not clarify the ministry’s final view. “We are yet to take a view. we have not taken a view so far,” Ravi said.
The investment climate is not conducive for Indian carriers to attract FDI even if the government allows it, said an analyst.
“This is not an attractive environment for investment, although airlines have been known to make nonsensical investments before, and will likely continue their behaviour,” said Ernest Arvai of US-based aviation consulting firm Arvai Inc. “IndiGo, who are profitable, are the likely first target. Jet, changing strategy yet again, appear on the downslide, and as a result may have a more difficult time attracting foreign capital. Others, such as SpiceJet, could also be attractive.”
Air Asia said on 14 October it sees no scope of investing in Indian carriers. “Indian market is not conducive for investing as the country is witnessing hyper competition along with other infrastructure bottlenecks. There are no separate terminals for low-cost carriers,” said Azran Osman-Rani, chief executive officer of AirAsia X.
Private airlines in India have lost Rs 3,500 crore in the six months ended September, more than the Rs 2,900 crore they lost in all of 2010-11, according to the lobby group Federation of Indian Airlines (FIA). IndiGo was the only carrier that registered a profit in 2010-11.
Top airline executives, led by Jet Airways (India) Ltd chairman Naresh Goyal, Kingfisher Airlines Ltd chief executive Sanjay Aggarwal, IndiGo president Aditya Ghosh, SpiceJet Ltd chief executive Neil Mills and GoAir chief executive Giorgio De Roni met aviation minister Ravi this month to discuss the industry’s problems and seek the government’s help, Mint reported on 18 October.
A Jet Airways official said allowing foreign airlines to invest was not the solution to the industry’s problems. The key issues that need to be addressed include a high-cost environment, taxes and low fares, the official added, asking not to be named.
Kingfisher Airlines, however, has indicated it wants foreign airlines to be allowed to invest in Indian carriers, according to Ravi Nedungadi, who sits on the board of the firm.
The airline’s chief, Vijay Mallya, held an unscheduled brief meeting with aviation minister Ravi on Monday, according to two government officials who did not want to be identified. They did not speak about the agenda of the meeting.