Some international air carriers have expressed interest in looking at investing in their Indian counterparts once the proposal is cleared for allowing them to take up to 49 per cent stake, while saying it was too premature to comment at this stage.
Etihad Airways, Singapore Airlines and the International Airlines Group (IAG), investment arm of British Airways, have indicated potential interest. Among those who say they aren’t interested are West Asia's largest airline, Emirates, Germany’s Lufthansa and Hong Kong’s Cathay Pacific.
Among India's large corporate houses, the Tatas and the Anil Dhirubhai Ambani Group were non-committal. Mukesh Ambani’s Reliance Industries and the GMR group said they didn’t wish to take stake in an airline.
The Tatas have made attempts, later aborted, to get into aviation. So did ADAG, making an unsuccessful bid to buy the erstwhile Air Deccan. And, GMR had looked at setting up a regional airline some years earlier.
Union civil aviation minister Ajit Singh announced yesterday that a consensus had been reached over allowing foreign carriers to buy up to 49 per cent in Indian carriers and a cabinet note would be moved soon. However, this comes when the global aviation scenario is under serious stress.
Aviation stocks surged on this news on the Bombay Stock Exchange. Jet Airways rose 4.96 per cent to Rs 246.55, Kingfisher climbed.60 per cent to Rs 25.25 and Spicejet closed at Rs 22,90, 2.46 per cent higher, against the Sensex which fell 0.09 per cent.
The International Air Transport Association (IATA) estimates that in a best case scenario, global airlines' profits would reduce 29 per cent in 2012. If economic problems in Europe worsen, the airlines could collectively lose up to $8.3 billion. According to the IATA report, Asia-Pacific carriers are expected to do well but European airlines could post up to $600 million of losses, due to weakened economies and increases in passenger tax.
Indian carriers are divided on whether they want foreign investors. GoAir has welcomed the move. SpiceJet and Kingfisher are also interested. IndiGo has categorically said it is not interested in getting a foreign carrier as partner.
“India being a big market, with huge potential for growth in the airline business, it's pretty easy to expect a great interest from foreign airlines to invest in India. Foreign direct investment will be a very useful tool but Indian airlines must also face and solve other challenges such as very high taxation on fuel, more consistent approaches to develop ancillary revenues to the benefit of customers having more freedom in the choice and various bottlenecks at operational levels,” GoAir CEO Giorgio De Roni told Business Standard.
SpiceJet and Kingfisher Airlines would not comment on the issue but they have been reported to be interested in welcoming foreign money in their airlines. IndiGo president Aditya Ghosh said his airline did not require any foreign investment.
‘Too early’
The Indian aviation market is growing at 17 per cent yearly and presence in it is considered important for any player wishing to build a global airline. British Airways’ holding company, IAG, one of the largest in the world, has shown interest in the market. In an email response to a questionnaire, it said: “Our aim is to be a global airline group and we are pleased with any steps towards liberalisation of the aviation industry. The process to allow foreign airlines to invest in Indian carriers has not yet been fully approved, so it would be wrong to speculate about IAG's interest in any Indian airlines at this stage.”
Singapore International Airlines replied: “As we have said many times, we keep all investment options open but there are no discussions taking place on the purchase of a stake in an Indian carrier.” To the question of whether we would be interested, should the law change to allow it, we aren't in a position to comment on hypothetical questions.”
“We are always looking at opportunities if they make sense for our business, but we would never comment on speculation of this nature,” Etihad said in an email reply. As for Emirates, despite its major presence in the country, “Emirates has no plans to acquire a stake in another airline in India or anywhere else. We are busy focusing on the many aspects of our own growth, including the launch of flights to five new destinations in as many months,” was the emailed reply of Majid Al Mualla, its senior vice-president (commercial operations--West Asia & Indian Ocean).
Reliance Infrastructure and the Tata Group have said that it would be too premature to comment on the issue. Videocon group chairman Venugopal Dhoot said: "In the next two to three years, aviation will not be a profitible business. So, I don’t think big companies will come. We might look at it in the long term but, currently, you can't make money."
