With local sources of capital drying up, the ability to tap foreign investors will be the key to survival of several airlines.
While the tenure of the earlier government began with an unprecented development of the Indian aviation industry in the first phase, followed by a downward spiral in the past one year, the new government now has to grapple with a host of policy issues, including relaxation of foreign direct investment (FDI) and operational norms, integration of the two national carriers into one and development of airport infrastructure, among others.
While the earlier government was successful in relaxing FDI limits in fields like groundhandling, cargo, and helicopter operations, they still have not been able to push a policy which would allow foreign carriers to pick up stake in Indian carriers.
“Indian banks and financial institutions now have significant exposure to the aviation sector and it is uncertain how much more they will be willing to take. With local sources of capital drying up, the ability to tap foreign investors will be the key to survival of several airlines over the next 12-18 months. The new administration should take the long-awaited step of permitting foreign airlines to take a strategic investment of up to 49 per cent in Indian carriers. It is imperative that the airline industry be turned around to a position of viability,” said the Centre for Asia Pacific Aviation (Capa) in its May report on the sector.
Even as the national carrier is expected to incur losses worth Rs 3,000 crore for 2008-09, a figure disclosed by aviation ministry officials and not confirmed by Air India, the carrier needs to integrate a large chunk of the manpower in the erstwhile carriers Indian Airlines and Air India. Ministry officials note that the delay in setting up a common reservation platform for the two carriers may delay the merger process by more than six months.
