Govt mulls FDI in aviation sector

At a time when domestic airlines are not doing well financially, the government is examining a plan that will allow overseas airlines to buy stakes in local carriers and bring in the much needed capital to fund various future programmes. Union civil aviation minister Praful Patel hinted at this while talking to reporters at a conference in Mumbai on Friday. "The process is still on and its difficult to give a time line for it, but I am hopeful the current government would be able to take a decision on the investment proposal," Mr Patel said on the sidelines of a conference to inaugurate a new terminal at Mumbai airport. Interestingly, this development comes even as the ruling UPA government early this week Parliament that no foreign airlines would be allowed to participate directly or indirectly in the local carriers. Even minister of state for industry Ashwani Kumar on Tuesday had made it clear that foreign airlines would not be permitted to pick up stakes directly or indirectly in the country's commercial airline sector. "The two different statements within a week indicate that any change in FDI guidelines for airlines is difficult in the current scenario," said an analyst with domestic brokerage firm. If foreign carriers are allowed to make equity investment in domestic airlines, then the largest private carrier Kingfisher and budget airline SpiceJet will be the most benefited. These two carriers are open for equity participation, the analyst added. Current regulations don't allow foreign carriers to hold equity, either directly or indirectly, in domestic airlines. Importantly, India is the only country where foreign institutional investors are allowed to invest in the aviation sector with an FDI cap of 49%. Most Indian carriers are already sitting on significant debt and raising additional resources may not be easy in the prevailing conditions. Delhi-based low-cost carrier SpiceJet told on Wednesday that any equity dilution should bring synergy and global footprint for the company as it's not looking for funding. Kingfisher is also ready to sell 25% stake to foreign airlines including the cash-rich Singapore Airlines and Virgin Atlantic Airways to raise funds. The loss rose 48% to Rs 626 crore for the quarter ended December 31, 2008. The other two large carriers, Jet Airways and Air India, have been against foreign airlines equity participation in the country. All the airlines are bleeding and the sector could likely suffer a combined loss of Rs 10,000 crore in the current fiscal, recent analyst reports suggested. On the issue of cartelisation, Mr Patel said it would crackdown on such attempt. The Directorate General of Civil Aviation is inquiring into the allegations, after some airlines made coordinated fare revisions earlier this month.