I once asked Civil Aviation Minister Praful Patel why foreign airlines could not be permitted to invest in domestic airlines. There was no bar on companies from the same sector putting in money in areas like telecom or IT. His answer was a conspiratorial smile and “it’s not as simple as you think.”
But, to my mind, it is pretty simple. Who will be more interested in putting money into an airline than another airline? Why would a company that’s dealing in oil and gas or say computer chips want to invest money into one of the Indian domestic carriers? And even if it did, what technical know-how and knowledge of the business can it bring to the table?
It’s a well-known fact the that only those who really understand the business get into it and survive. Is it not naive then to expect companies whose core business is not aviation to come forward and put in cash? Most international deals usually involve two airlines. Even in China — which has a fairly restrictive aviation environment — there’s no such bar. Just sometime ago China Eastern Airlines, one of China’s top carriers, wanted to sell a 24 per cent stake to Singapore Airlines (the deal fell through subsequently but not due to policy restrictions) and its parent Temasek, setting the stage for further foreign investment in the sector.
The expat CEOs that have come in to start or assist Indian carriers — Bruce Ashby for Indigo, Mark Winders for SpiceJet or Warwick Brady for Air Deccan — have already shown how much it helps to have some prior understanding of the sector. Both SpiceJet and Indigo are low-fare carriers that have tended to stay focussed on the task at hand and not tried to vary or experiment too much with the basic low-cost model which has proved successful in so many countries.
It does perhaps make sense to keep the foreign investment limit at 49 per cent as airlines that are designated to fly overseas from India will need to be primarily Indian-owned and with effective control in the hands of Indians. Security considerations also demand that the ownership remain in Indian hands. Several countries — Australia, New Zealand and even the United States — limit the percentage of foreign equity permitted in a domestic carrier but, within that limit, do not restrict the kind of investment that can come in. Not only is one unable to make sense of the government’s logic, their flip-flop on it has hurt the sector and airlines in the past. Back in the early 1990s, Jet Airways had foreign airline stakes — Gulf Air and Kuwait Airways — and was suddenly asked overnight to buy out that stake.
Similarly, the no-foreign-airline-stake bogey was used to keep the Tata group (which wanted to launch an airline with Singapore Airlines) out of this sector when it suited vested interests to do so.
Two years ago, when the civil aviation ministry was working on the final contours of the draft aviation policy — which remains a draft to this day — I put the same question to senior officials of the ministry and they looked at me as if the question had never occurred to them. Finally, one of them explained that he thought the policy was made primarily because the Indian aviation companies were not keen on foreign airlines being permitted to invest in their companies for some kind of fear of losing out. I remember thinking then how this made no sense.
One, when foreign money comes into the Indian carriers through investors, it is virtually impossible to tell whether it is an indirect investment by a carrier or not. Yet one does not get any of the benefits of the direct involvement. Just for the sake of argument, say, the China Eastern deal had materialised — it would make very little sense if the airline was to insist the entire amount be invested through Temasek and none through Singapore Airlines. For one, ascertaining the sources of funds would be impossible. And secondly, Temasek couldn’t possibly match Singapore Airlines’ ability to better China Eastern’s operations, strategy and functioning.
Secondly, by opening up the skies and allowing foreign carriers to operate from the nook and crannies of India — a move that was essential for the consumer and the country — Indian carriers have already lost out a bit anyway.
Things have come a full circle now since the government is again considering a change of policy. Moreover, it is considering the change at the behest of domestic airlines like Kingfisher and Jet Airways. But who is lobbying for it and who gains and who loses isn’t relevant, I think it’s high time the government changed its rather silly and illogical rule.
