Spicejet, Kingfisher seem early birds to catch FDI flight

Except for the cash-strapped Kingfisher Airlines (KFA), most private airlines are unsure over the possible benefits of increasing FDI in the sector to 49 per cent.

It may be noted that domestic carriers like Kingfisher, SpiceJet and Jet Airways have been telling the media that they are independently in talks with foreign carriers for a probable stake sale if FDI is allowed, while the public stance of profitably-run Indigo is that it is not too keen to tap the capital market. 

Jet Airways said, “We welcome any policy initiated by the Government of India,” which suggests it is not clear on the development, while KFA, having a debt of over Rs 7,000 crore, said, “The FDI in airlines will open up a wide range of opportunities for both domestic as well as foreign carriers which wish to participate in the strong growth potential for civil aviation in our country.”

Getting optimistic, KFA hopes the move will enable it to re-engage with prospective investors in a more meaningful manner, while saying the government decision would help the airline recapitalise and ramp up its operations. So much so, Vijay Mallya tweeted soon after the Centre announced major policy changes: “Bold decisions taken by Government. Fantastic to restore confidence and kickstart economic growth opportunities.”

Analysts and aviation experts welcomed the move, but felt comes a tad late and will benefit domestic carriers in the mid to long term only if the sector fundamentals are changed and no foreign carrier can change that with any amount of investment.
In this context, International Air Transport Association (IATA) commented that allowing FDI by foreign airlines is no panacea for the problems faced by the Indian economy.

“The critical problems of a high cost environment, insufficient infrastructure and crippling taxes must also be comprehensively addressed within a coordinated government-wide policy framework,” said IATA Country Director (India) Amitabh Khosla.

Foreign carriers like Lufthansa, Emirates and Singapore Airlines who had evinced interest in the past to invest in Indian carriers can now pick up stake up to 49 per cent but whether they will do it is the moot question. For one, except for Indigo airlines almost all domestic carriers posted losses for 2011-12. Citing combined losses of Rs 12,000 crore in that year, airline bosses have been urging government to modify jet fuel tax structure.

Some bankers have bet on SpiceJet and GoAir emerging as favourites for prospective investors. “There will be selective interest by global airlines, chiefly because the financial condition of the global aviation industry is a far cry from its glory days,” said Rothschild MD Amitabh Malhotra. Despite airlines like Jet Airways and Spicejet showing profits in the first quarter of this fiscal, no one is too sure that happy days are back in the sector.