Economy Sep 27, 2012
Does the government want FDI in aviation or just a lifeline for some of our beleaguered entrepreneurs? The jury is out for now.
Civil Aviation Minister Ajit Singh has, in the past, acknowledged that merely allowing foreign carriers to invest in India will not solve the problems which plague the aviation sector. By deciding not to give fresh licences to set up a greenfield airline for the time being, Singh is ensuring that FDI is about saving existing airlines, and not about setting up new ones.
Speaking to Business Standard, Singh said, "We are not giving licences for greenfield airlines. As of now, FDI (foreign direct investment) in aviation can come only through existing airlines."
Bankers who have lent money to the sector will be happy, but aviation is not going to see a flood of new initiatives. Thus, while FDI may bring in much-needed long-term financial and strategic capital and expertise, it will be limited to only three-four Indian companies looking for foreign equity - mainly, SpiceJet, GoAir and Kingfisher Airlines. Why would any foreign investor sink money in order to revive Kingfisher, with its depleted operations, huge debt burden and high cash burn?
"But the balance-sheets of most of the incumbent carriers are relatively weak and the sector faces numerous structural challenges. So foreign airlines will make their own assessments about whether they consider a carrier to be a suitable investment at this time," Kapil Kaul , India head of the Centre for Asia Pacific Aviation (CAPA), said recently.
It makes better sense for a foreign airline company to start a new airline with a local partner than take on a highly indebted company.
The restriction on new licences will come as a major dampener for Asia's largest low-cost carrier, Air Asia, which is reportedly looking at the possibility of a start-up with a strong Indian partner.
According to Kaul, real benefits from the opening up of the sector will only be seen in the long term and not in the short-term. "If the government is serious about granting new licences to well-funded, professional start-ups, we could in due course see the launch of greenfield joint ventures by carriers such as AirAsia, Jetstar and Tiger Airways," the report said said.
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