Foreign airlines that had earlier shown interest in buying stakes in local carriers may now renew talks after India on Friday allowed direct investment by overseas carriers in domestic airlines.
“India is the ninth largest aviation market in the world and will be in top three in the next eight years. So it is logical to have a presence through equity participation rather than having co-operation through alliances,” said an executive with an European carrier, who refused to be named.
An airline consultant, on condition of anonymity, said, “It is right time for international carriers to invest in India as they might get attractive deals because some local carriers have been accumulating losses.”
“Equity participation will give better control. This will also help in shaping up and participating in the growth. Any carrier would want such presence in emerging markets,” he said.
“For Etihad Airways, India was always a big market. They are among top global airlines waiting to invest in Indian carrier. They have made necessary acquisitions in key markets to have a positive impact on their revenues,” said an executive with a private Indian airline, who declined to be identified.
Ethihad Airways said it does not comment on speculation.
International Airlines Group (IAG), the parent of British Airways said on Friday that India is a key market for them and it will monitor the changing regulatory environment. “But at this stage, we have no plans to invest in any Indian airlines,” it said in a statement.
“India is one of the world’s most important aviation markets. While Emirates’ philosophy is to focus on organic growth, we always welcome any reform which liberalises markets, including FDI (foreign direct investment) rules,” an Emirates spokesperson said.
Emirates flies to 10 cities in India and is looking to deepen its reach through alliances with global carriers, including Australia’s Qantas.
Lufthansa said it has no plans to invest in any Indian carriers. In the past, it had bought equity stakes in SWISS, Austrian Airlines, Germanwings and Brussels Airlines.
Qatar Airways may also be in the race for investing in Indian carriers, including Kingfisher Airlines. Mint could not reach Qatar Airways for a comment immediately.
In January, Bloomberg reported that Qatar Airways is examining a potential acquisition in Europe, where it last year purchased a stake in freight operator Cargolux International SA.
“Foreign airlines are keen to have 51% stake in local carriers. But something is better than nothing. One would not be surprised if AirAsia also emerges as one of the key bidders for local carriers as Indian sky is dominated by low fares carriers such as IndiGo, SpiceJet, GoAir, JetLite and Air India Express,” said another airline consultant, also requesting anonymity.
Mint could not immediately contact AirAsia for a comment.
Both Etihad Airways, the national airline of the United Arab Emirates, and IAG have grown through acquisitions.
Ethihad Airways, owned by Abu Dhabi’s government, recently bought a stake in three airlines—in Europe, Australia and Seychelles. In December, Etihad Airways concluded its first major equity investment increasing its stake in airberlin, Europe’s sixth largest airline, to 29.2%. It acquired a 40% shareholding in Air Seychelles in January.
In early September, Etihad Airways bought a 10% its equity stake in Virgin Australia Holdings Ltd. Also, Etihad Airways is keen to increase its stake in Aer Lingus Group Plc., a European low-fare carrier in which it already owns 3%.
Similarly, after buying Iberia and bmi, IAG is now exploring the possibilities of investing in Japan Airlines. IAG and Japan Airlines had forged a joint business agreement to cooperate commercially on flights between the EU and Japan.
IAG is also looking at buying a minority stake in American Airlines to cement their commercial relationship.
Loss-making and debt-laden Indian carriers are understandably upbeat over the government’s decision to permit international airlines to invest up to 49% in local carriers.
“This will open up a wide range of opportunities for both Indian carriers and foreign carriers who wish to participate in the strong growth potential for civil aviation in our country. Kingfisher Airlines will now be able to re-engage with prospective airline investors in a more meaningful manner and move towards re-capitalization and ramp up of operations,” a Kingfisher Airlines statement said on Saturday. Debt-laden Kingfisher Airlines was at the forefront when lobbying for FDI.
Jet Airways, too, reversed its earlier stand of opposing FDI, saying: “We welcome any policy initiated by the government of India.”
Allowing 49% stake to foreign airlines will create access to capital, global connectivity, technology and best practices, according to Amber Dubey, partner and head, aviation, at global consultancy KPMG. “This could lead to the establishment of new airlines in India and, perhaps, change in the ownership structure of certain Indian carriers,” he said.
Amitabh Khosla, India country director at International Air Transport Association, said the move will allow Indian carriers to have strategic tie-ups with foreign airlines cemented by an equity stake.