Willie Walsh, chief executive officer of British Airways Plc (BA), who has steered the airline to a merger pact with Iberia Lineas Aereas de Espana SA, says BA would be interested in buying a stake in an Indian carrier if the government permits foreign investment.

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“If the rules change, not just British Airways, all airlines around the world will look at the possibility to invest in Indian carriers," Walsh said in an interview on his fourth visit to India. He was on the new Boeing 777-300ER that made its inaugural commercial flight from London to Mumbai; BA is the first airline to take delivery of the long-range plane.

Flight plan: British Airways chief executive officer Willie Walsh says new code-sharing pact with Kingfisher Airlines enables both carriers to fly across India, Sri Lanka, the UK and continental Europe. Frantzesco Kangaris/Bloomberg

Walsh also announced a code-sharing agreement with Kingfisher Airlines Ltd, which BA is sponsoring to join the Oneworld alliance.

The agreement will cover BA and Kingfisher flights across India, Sri Lanka, the UK and continental Europe. In an interview, Walsh speaks about the prospects for the aviation industry in general and the potential of the Indian market in particular. Edited excerpts:

Where is the aviation business headed?

2010 will be a much better year for the airline industry. 2009 was by far the worst for the airline industry...We have seen a strong recovery in Asia, Latin America and Africa. The recovery in the US and Europe is a bit slower, but the economic conditions have improved significantly. So I think 2010 will be a better year. A lot of airlines will be reporting profitability.

Would profitability be consistent?

Yes. I think airlines have adapted very well to the global economic recession. The airlines have learnt a lot during that period. They will have to apply that learning in the context of the growth environment so that they can adapt quickly if the economies start to decline again.

During the slowdown, bigger airlines opted for mergers and acquisitions. Even you are in the process of merging with Spain’s Iberia Lineas Aereas de Espana SA. Is that a solution to the crisis?

I think consolidation is a part of the solution. It will not resolve all the issues faced by the industry. But I do believe it will offer a part of a solution to the challenges. From an industry point of view, I see more mergers and acquisitions going forward. But airlines have to do a lot of work. They have to be more efficient. All airlines are facing significant investment issues to fund new aircraft. They have to be funded by profitability in the current environment as access for capital from banks is going to be...difficult.

The government is going to meet on 14 September to review the Indian civil aviation sector and it is studying a proposal for allowing foreign airlines to invest in Indian carriers. Would British Airways be looking at such an opportunity?

If the rules change, not just British Airways, all airlines around the world will look at the possibility to invest in Indian carriers. I have no doubt Indian carriers would welcome such foreign investment because airlines are looking at strengthening their financial position. Also, consolidation will help. We will be looking at opportunities in the future. We are sponsoring Kingfisher Airlines into Oneworld (a global grouping of airlines) because India is such an important growth market and we want to participate in this growth.

Why choose Kingfisher Airlines, why not Jet Airways or some other airlines?

I am really delighted that we selected Kingfisher. It is a very ambitious airline. We have been able to work well with one another. We looked at all aspects of Kingfisher, including what they are doing and what they want to do in the future. It is a perfect fit for British Airways.

What is beyond code-sharing with Kingfisher Airlines?

This is a great start for developing a relationship. We would be looking at extending the quantum of code-sharing. And I think there are lots of opportunities and we are very ambitious about the developing a relationship with Kingfisher.

Would code-sharing with Kingfisher Airlines mean the end of British Airways’ expansion in India on a stand alone basis?

It does not. British Airways flies to five Indian destinations. British Airways wants access to other points in India’s large domestic market. And there is no way British Airways could serve all those destinations on its own. This is a perfect example how working together will give our customers—and new customers— more choices and provide more competition to carriers, Emirates (Airline) in particular, that has set ambitious expansion (plans) in India. I think it is perfect example of how code-sharing works well and alliances work well to...provide customers better choices and better experience. That is why I am so excited.

How important is India? How much can it contribute to your revenues?

Well, we don’t break (down) the revenue contribution of various markets. The transatlantic market is (a) very big market for British Airways. India is the second biggest international market for British Airways. We fly 45 flights to five Indian cities directly from Heathrow. I think the fact that we are flying our brand new (Boeing) 777-300 ER aircraft between Mumbai and London Heathrow shows how important is this market to us. We will also fly 777-300 ERs to Delhi. We have a lot of opportunities to grow here. By joining with Kingfisher, it will give British Airways customers an opportunity to enjoy (a) much larger network.

India has witnessed significant capacity additions on the India-UK route and some of the carriers pulled out their capacity on the same route. Do you still think India-UK is a profitable route?

We don’t disclose profitability. It is definitely one of the competitive markets today because of the strong direct competition between British Airways, Virgin Atlantic, Jet Airways, Kingfisher and Air India. And there is lot of indirect competition from Middle East carriers like Emirates. There were few profitable routes in 2009. We have seen (a) strong recovery and I am very optimistic about India.

Do you think that British Airways was late in encashing the Indian market?

I don’t think so. We were restricted because of the agreement between our two governments till 2004-05. We expanded immediately to India the moment the agreements were liberalised. For sometime, we were looking for a domestic partner in India, that is why the agreement with Kingfisher is exciting for us. It really opens up (a) whole new market for British Airways customers and for potential customers in India who want to travel to UK and Europe...

Are you happy with India’s infrastructure?

Infrastructure is a very important issue. When I was looking at some of the developments in India, I was jealous. The new airports in Bangalore and Hyderabad and terminal facilities in Delhi and Mumbai are clearly ambitious...Infrastructure is an issue all over the world.

The International Civil Aviation Organisation is meeting in Montreal this month-end. What do you expect from world governments?

I think it is a real opportunity for the governments to work with the industry to address environmental issues. The government can help airlines in improving the performance. Air traffic control is important. We are still forced to fly more because of old restrictions on flying. There is no need for this. The technology of the aircraft today allows us to fly (on a) direct route. That would make a huge difference. It is estimated that we could reduce our CO2 (carbon dioxide) output by about 12% if we have a single air traffic control covering all of Europe rather than individual countries having their own air traffic control environments with several sections. It is very fragmented. Governments should work with us and would be able to improve the environmental performance of the industry.

Like in the UK, the Indian government has come up with a service tax on travel. How do you see these government interventions?

I think this is a risk that can suppress growth. This will have an impact. Aviation is a driver of economic growth. Aviation is a facilitator of international business. I think governments need to look carefully at the levels of taxation. This is the industry where you need to invest billions of dollars in equipment to ensure that we have the right and efficient aircraft to support global economic developments. Look at the profitability of airlines in the last 10 years. Collectively airlines lost $48 billion in the last 10 years. Industry was only profitable for three years in that 10 years. We can’t continue with this big burden of high levels of taxation.