Just because foreign airlines may soon be allowed to invest in India's battered carriers doesn't mean they will.
New Delhi's expected move to allow global airlines to own up to 49% in Indian carriers has been welcomed by investors as a potential lifeline for an industry mired in $20 billion of debt and on course to rack up $3 billion in annual losses.
But aviation industry experts say any celebration is premature.
"There's absolutely no reason to be bullish on airlines," said a Mumbai-based analyst with a local brokerage, who did not wish to be identified.
"Unless fuel and other dollar-denominated costs come down, nobody's going to invest in these companies, they're in such bad shape," he said, referring to a 16% decline in the rupee in 2011, which has driven up costs for local carriers.
Five of the country's six main operators are loss-making.
Taxes in India make jet fuel far more expensive than for global competitors. State-owned Air India, which is trying to restructure $4 billion in debt, has slashed fares, forcing competitors to follow suit.
Two carriers, IndiGo and Go Air, have between them ordered about 200 planes for more than $23 billion, adding capacity to a market where dozens of planes already sit grounded.
And changing ownership rules will do little to alter India's unappealing market dynamics or regulatory environment.
"Every airline will be interested in India because it's such a big market. But the environment should be conducive to the proper business processes," Akbar Al Baker, CEO of Qatar Airways, told Reuters recently.
India boasts the fastest growing passenger market in major economies, up 17% to almost 61 million people last year, and the potential is huge. With a comparable population, China's domestic air passenger market is five times the size of India's.
"This is going to be the most important market for the next two to three decades. They (foreign players) need to have a very credible India story," said Kapil Kaul, regional head of the Centre for Asia Pacific Aviation (CAPA), an aviation consulting firm.
But, while global giants like British Airways, Singapore Airlines and fast-growing carriers from the Gulf covet an Indian presence, they may see little advantage in committing capital without further regulatory and competitive changes.
Meanwhile, the global airline industry is not in the rudest of health as high fuel prices and sluggish economies in the United States and Europe crimp travel demand.
In December, the International Air Transport Association (IATA) warned airlines faced over $8 billion in overall losses this year if Europe's debt crisis spirals, and, even in a best-case scenario, the global industry was likely to see profits halve this year from nearly $7 billion in 2011.
Tough Market
Indian carriers, burdened with debt, are desperately seeking foreign partners, which would not only provide funds but technical expertise and an enhanced route-map.
Kingfisher Airlines <KING.NS> is in the most need of a deep-pocketed partner. Controlled by liquor baron Vijay Mallya, it has failed in efforts to bring in fresh equity. Its banks own a quarter of its shares and State Bank of India, its lead bank, refuses to lend more without an equity injection.
Kingfisher said last month it was in talks with Hong Kong-based distressed debt firm SC Lowy Financial for a possible investment.
The prospect of foreign funds flowing in has boosted shares of India's airlines, with Kingfisher up 7% since mid-January, when India's aviation ministry said it favoured allowing foreign airlines to own up to 49% of local carriers. Shares in budget carrier Spicejet are up 20%, and market leader Jet Airways 29%.
But caution remains.
Citigroup said the probability of foreign carriers investing up to 49% is limited, given already sizeable market shares on key international routes into India and existing code-sharing agreements with major domestic carriers.
"In the short term, the only advantage of this news flow is that it could improve the perception of the credit quality of the aviation sector," Citi said in a research note.
The poor health of the nation's airlines prompted the federal government to take the first steps to open up the sector, even after it retreated from a similar plan that would have opened the supermarket segment to foreign investment.
The cabinet meets next week to decide the fate of the aviation ministry's proposal.