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Money Sep 17, 2012

Aviation flies high; SpiceJet may see FDI this year

By Firstbiz Staff

Shares of aviation companies extended their rise after the government allowed 49 percent FDI in the sector.

SpiceJet was up 12.9 percent at Rs 38.95, Kingfisher Airlines up 20 percent at Rs 12.97 and Jet Airways more than 2 percent at Rs 375.95.

Analysts consider SpiceJet as the only company that is likely to get a foreign partner as of now. JP Morgan in a research note said today that Spicejet is the most likely domestic player which could see a potential investment as it has a relatively stronger balance sheet compared to its listed peers and has potential to gain market share through fleet expansion

"SpiceJet, which is in "no rush" for funds, may be the most appealing target for foreign investors because of the discount carrier's low debt and record of profitability", Sharan Lillaney, an Angel Broking analyst told Bloomberg.

SpiceJet was up 12.9 percent at Rs 38.95,

A SpiceJet official told CNBC TV18 that he expected an investment to come in this fiscal itself. He, however, said there are issues like tax structure and the pricing of the ATF to be resolved to make the sector attractive for foreign investors.

Arabian Business had last week reported that the Indian low cost carrier is in talks with Gulf airlines for a possible investment. It said one of the companies SpiceJet spoke to is likely to be Qatar Airways.

Analysts and aviation experts welcomed the move, but felt it comes a tad late and will benefit domestic carriers in the mid to long term only if the sector fundamentals are changed and no foreign carrier can change that with any amount of investment.

Even global airlines body IATA has highlighted the problem of high-taxes and infrastructure cost but said it will allow Indian carriers to have strategic tie-ups with foreign airlines cemented by an equity stake. India's taxation is based on China's tariff which is 180 % more. The world's most expensive airport in terms of landing fees and handling charges is Delhi's Indira Gandhi International terminal.

"The critical problems of a high cost environment, insufficient infrastructure and crippling taxes must also be addressed within a coordinated government wide policy framework," International Air Transport Association (IATA) India director Amitabh Khosla said.

Even brokerage JP Morgan has recommended selling aviation stocks because of high oil prices and slowing passenger traffic growth which will likely limit pricing power. It adds that since the Indian aviation sector has already seen consolidation over past 12-18 months, any potential infusion of new capital into the industry will drive up competitive intensity and potentially reverse the benefits of recent consolidation.

Among the Indian airline companies, Jet Airways is the company which is least expected to get any investment. Moreover, it does not meet eligibility norms given its current promoter's holding of 80% is routed through overseas entities and is already deemed as FDI. But the stock was up on the general upbeat sentiment for the sector and its strong market share in the aviation sector.

by Firstbiz Staff

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