Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Politics / Policy/  Air India raises concerns over FDI in aviation
BackBack

Air India raises concerns over FDI in aviation

Air India CMD writes to aviation ministry, saying liberalized FDI policy could hurt local airlines

Air India has reason to be worried about its privately run rivals getting a boost from foreign airline investments. The troubled state-run firm is relying on a taxpayer-funded $5.8 billion bailout to stay in business. Photo: Abhijit Bhatlekar/Mint (Abhijit Bhatlekar/Mint)Premium
Air India has reason to be worried about its privately run rivals getting a boost from foreign airline investments. The troubled state-run firm is relying on a taxpayer-funded $5.8 billion bailout to stay in business. Photo: Abhijit Bhatlekar/Mint
(Abhijit Bhatlekar/Mint)

New Delhi: State-run Air India Ltd has warned the government that allowing investments by foreign airlines will hurt the interests of domestic airlines and prevent Indian airports from developing into international hubs.

The government should study the potential impact of such investment on the domestic aviation sector as a whole, chairman and managing director (CMD) Rohit Nandan wrote in a letter to aviation secretary K.N. Srivastava in December, according to two government officials, who declined to be named.

Nandan’s letter has prompted the aviation ministry to start work on introducing guidelines to address the concerns, but it is unclear how far it can go beyond clearing investments by foreign airlines in domestic ones on a case-by-case basis, one of the two officials said. The guidelines are expected to be ready in a few weeks’ time.

Nandan and Srivastava declined to comment on the matter.

India in September allowed foreign airlines to own up to a 49% stake in local airlines, accepting a demand by cash-strapped domestic airlines to help shore up their capital and reduce debt.

Jet Airways (India) Ltd and Kingfisher Airlines Ltd have since begun stake-sale discussions with Abu Dhabi-based Etihad Airways PJSC. Last week, Jet indicated it might be closer to a deal with the West Asian airline than Kingfisher, whose licence to fly lapsed on 31 December.

Nandan wrote in his letter to Srivastava that the liberalized FDI policy could hurt local airlines because overseas airlines may choose to use Indian airlines mainly as feeder services for their own operations, said the official quoted above.

If, for example, the Jet-Etihad deal goes through, the national airline of the United Arab Emirates (UAE) will gain access to Jet’s entire domestic base of passengers, whom it can fly to the US, Canada and Europe under bilateral aviation agreements between India and the UAE, the official said.

And the ambitions of Indian airports to emerge as international hubs would be undermined because foreign airline investors will want to divert the passenger traffic to their own hubs abroad, the Air India CMD was cited as writing in the letter.

New Delhi, Mumbai, Hyderabad, Bangalore, Chennai and Kolkata airports have spent more than $9 billion (around 49,500 crore today) on modernization since 2006.

The department of industrial policy and promotion has asked the aviation ministry to prepare sectoral limits, but “we don’t know what can be done", said the second official. “Maybe we will take them on a case-by-case basis," he said, referring to investments by foreign airlines in India.

Air India has reason to be worried about its privately run rivals getting a boost from foreign airline investments that could undermine its own competitive edge. Troubled by high debt and other operational hassles, the state-run firm is relying on a taxpayer-funded $5.8 billion bailout to stay in business.

An immediate threat is the potential Jet-Etihad deal.

“Air India’s last resort for profitable business is the (Persian) Gulf. Jet has aggressively muscled into that business, and now with combined forces it makes it far more difficult for Air India," said an international analyst who tracks India’s aviation sector, asking not to be identified.

“It is all a volume game—the more capacity you offer, the greater your market share is, a greater market share means you can determine prices, which determines profitability," the analyst added.

Another expert, disagreeing with Air India’s argument, said it should be left to the market to decide the fate of local airlines.

“Most of the countries that allow foreign carrier investments in local airlines are countries with firm capitalistic ideals and practices. It is the survival of the fittest," said Steve Forte, former chief executive at Jet Airways.

“Etihad’s investment should result in increased efficiency and strength of Jet Airways, particularly in the international market. While such result is not definite, in my opinion this is what will happen," Forte said. “Perhaps it will serve as a wake-up call to the branch of the government that rules over Air India."

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 10 Jan 2013, 12:18 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App