India May Open Airline Industry To Investment From Foreign Carriers

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The Indian government will make a decision this week on whether to allow foreign airlines to purchase stakes in Indian carriers, said a report by the Times of India on Wednesday.

The move is one which could potentially provide a lifeline to cash-strapped carriers such as Kingfisher Airlines, with Indian carriers now facing an accumulated debt of $16 billion and cumulative losses of over $8.5 billion.


The Indian government will make a decision this week on whether to allow foreign airlines to purchase stakes in Indian carriers, said a report by the Times of India on Wednesday.

The move is one which could potentially provide a lifeline to cash-strapped carriers such as Kingfisher Airlines, with Indian carriers now facing an accumulated debt of $16 billion and cumulative losses of over $8.5 billion.

[quote]“A decision is imminent,” told a senior government official to the Indian newspaper.[/quote]

On Tuesday, India’s commerce & industry ministry a circulated a cabinet note to other government ministries, seeking comments on whether to permit a 49 percent foreign direct investment limit for the nation’s carriers. The proposal, which has already been agreed upon by the finance and civil aviation ministries, will now be taken to a cabinet meeting on Thursday in order to decide its fate.

If the decision goes through, foreign carriers such as Singapore Airlines and Emirates will be allowed to invest up to 49 percent into India airline companies. In 1996, a joint move by Singapore Airlines and Tata to acquire Air India was blocked by the Indian government, while Jet Airways owner Naresh Goyal was also forced to buy back a 40 percent stake in his company from Gulf Air and Kuwait Airlines.

Though the Indian government has since allowed non-airline investors to purchase stakes in Indian carriers since then, the high cost of fuel, coupled with the poor performance of some Indian carriers, may now force authorities to push through the change – with the proposal needing approval from the trade ministry and the union cabinet to be passed into law.

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Vijay Mallya, the owner of Kingfisher Airlines, has already said that some foreign airlines have expressed interest in investing in his company, which currently is $1.3 billion in debt. The government-owned Air India also desperately needs a fresh infusion of funds, after numerous banks refused new loans for the company.

[quote]”Given the financial state of the industry, such a move (to allow foreign investment) should be strongly welcomed and it will have positive strategic implications on the sector,” said Kapil Kaul, the South Asia CEO of the Centre for Asia Pacific Aviation, in an interview with the Economic Times.[/quote]

But not all Indian carriers may benefit from this move, added Kaul, with external foreigner investors already owning up to 80 percent of Jet Airways and 49 percent of IndiGo.

“Because of their large foreign ownership, Jet and IndiGo are unlikely to be eligible for FDI from foreign airlines. Others such as Kingfisher, GoAir and SpiceJet can expect fresh funding through this route,” Kaul noted.

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