Govt favours 49% FDI in aviation, to give Rs 150 crore to Air India
PTI NEW DELHI ACCEPTING a major demand of the cash-strapped aviation industry, the government on Tuesday said it would soon launch the process to allow foreign airlines 49 per cent stake in the Indian carriers.
A meeting between finance minister Pranab Mukherjee and civil aviation minister Ajit Singh also decided to immediately release Rs 150 crore for payment of portion of pending salaries and allowances of Air India employees, including pilots.
Replying to questions after the 75-minute meeting, Singh said “the question was to allow foreign airlines to participate in FDI. I discussed it with the finance minister and he has agreed. We will bring out a note for the Cabinet now.” “We realised that FDI is one of the factors that will help the industry survive the current financial problems.” Shares of Indian airline companies surged by 7 to 12 percent ahead of a meeting earlier in the day between Singh and Finance Minister Pranab Mukherjee.
India’s loss-making airlines are grappling with high jet fuel prices, low fares and an economic slowdown. The total debt of the industry is expected to rise to $20 billion for the fiscal year ending in March, according to an Aviation Ministry report. A decision to open up the sector would be especially welcome to debtladen Kingfisher Airlines, which has long lobbied for the change.
“It is strongly welcomed. It has been long long overdue,” said Kapil Kaul, regional head of the Centre for Asia Pacific Aviation, an aviation consulting firm. “This will lead to capital, strategic expertise. This will also lead to foreign and domestic fund flows to the sector.” Kaul said.
US billionaire Wilbur Ross briefly invested in budget airline SpiceJet in 2010, making it the only Indian carrier to get major foreign investment in recent years. British Airways has been speculated as a possible candidate to pick up a stake in Kingfisher, which said last month that it would join the global oneworld alliance from February to help boost its competitiveness and finances.
“The current losses of the airlines make the valuations attractive,” said Amber Dubey, director of aviation at KPMG.
An analyst at a Mumbai brokerage, who did not wish to be identified, said airlines such as Kingfisher and Jet Airways, with large founder stakes, would be comfortable with diluting their shares to allow investment by foreign carriers.
The Chairman of SBI, the country’s largest lender, said on Tuesday that his bank would find it difficult to lend more to Kingfisher as the bank considers its loans to the airline to be non-performing. SBI is the leader of the consortium of lenders to Kingfisher.
All but one of India’s six main airlines are loss-making as they engage in aggressive price competition. India’s airlines are expected to lose up to $3 billion in the fiscal year that ends in March. State-owned Air India, operating on government life support, is expected to account for more than half of that, the Centre for Asia Pacific Aviation has said.