Foreign airlines give a muted response to higher FDI cap

Find Indian market lucrative, but sceptical about investment in the sector

There seems to be little enthusiasm among international airlines over the government’s plan to allow them to pick 49 per cent stake in their Indian counterparts.
In spite of a high and sustained growth in passenger traffic, the financial strength of almost all Indian airlines is severely affected, leading foreign carriers to be disinclined to invest at the moment.

Top aviation officials, who had met at the 68th annual meet of the International Air Transport Association (IATA) in Beijing last week, spoke about strict regulations, lack of reforms and the government’s backing to Air India as factors which came in the way of competition.

“We have been hearing it (allowing foreign airlines to invest) for five years. India is an attractive destination for us to serve, but I am not sure if India will be an attractive destination for us to invest in,” Willie Walsh, chief executive of International Airlines Group, which owns British Airways and Iberia following their 2011 merger, said.

He said a major reason was the “continued financial support” of the Indian government to Air India, which “in my mind distorts competition”.

“Part of the problem that exists in India is the financial viability of the airlines, which is caused by the Indian government continuing to support the inefficient state-owned airline,” Walsh said.

“Anybody who is looking at India now is going to say it’s going to be an extremely difficult proposition. There is a reward, access to a vast market, but the execution of that is the question,” said Tim Clark, president of UAE carrier Emirates.

“You cannot afford to let civil aviation be a lame duck, not in something the size of India. You will have to find a way to make it work,” he said.

Azran Osman, chief executive of Malaysian low-cost carrier Air Asia, said, “You have got to address that big white elephant, Air India. If it continues to behave the way it is, you can make it 100 per cent foreign ownership, and no one’s going to be attracted.”

However, Bruce Ashby, CEO of the global airlines’ group ‘Oneworld’, struck a different note saying it was possible that some foreign carriers may invest in India.

“Recently, we have seen foreign carriers put their money into other foreign carriers around the world. It is possible. But I do not have any specific airline in mind when I say that. It is certainly possible because we see that happening in other places,” Ashby, who once headed no-frill carrier IndiGo, said.

A proposal to allow foreign carriers to own up to 49 per cent in Indian airline companies has been pending for several weeks now for consideration by the Union Cabinet.

The Trinamool Congress, a major partner in the ruling UPA coalition, is opposing this move.

http://www.business-standard.com/india/news/foreign-airlines-givemuted-response-to-higher-fdi-cap/477664/