Friday, September 14, 2012

Breaking! India clears FDI in Aviation- now who will bell the cat?

Neelam Mathews
Sept 14, 2012

In a surprise move and a sudden decision,  the government’s Cabinet Committee on Economic Affairs has altered norms for foreign direct investment (FDI) in the aviation sector. International airlines can now invest upto 49% in domestic carriers

Given that nothing untoward happens, this will be implemented in 3-4 months.

Airlines such as AirAsia and Etihad are known to be standing in the shade waiting for the impossible to be implemented.

Pix Speculation 1- Who will lead whom? 
Pictures Source-rediff
 While this brings in some cheer to ailing carriers, there is a weary road ahead given that most airlines are weighed down with heavy debts.

Kingfisher that has been crying wolf and promising a turnaround if FDI is allowed, will now need to deliver fast. Aerospace Diary learns, it is believed to have signed a letter of intent with a Middle East carrier with deep pockets. The carrier is interested in an airline that can feed its international routes. “There could be a synergy here as Kingfisher has no international routes left. The foreign carrier will waive outstandings and KFAs 65 stations still holding manpower, once operating to 75 Indian airports, might be an attractive bet,” says an analyst. What is clear is that contracts will be water-tight and management control will be vested in the new partners. How they will move around the 49% limit, is a matter of juggling, an official told us.

One suspects, many such LOIs are floating around, which makes sense......

Jet Airways might not be an attractive option for the moment, given that 70% of its revenues are from its international routes, we learn.

Interestingly, many are speculating that given the world-wide recession and despite India’s poor record of paying for leased aircraft, aircraft that will be brought in will be  cheaper. “India will get new aircraft and those grounded will come back at a lower price,” observes an airline official.

It goes without saying nothing is easy in India. However, its quite clear that nobody is jumping into the pan in a hurry. We can expect many rumors and speculations in coming days! 

With finances of the airlines in a mess,operations will need to adopt best practices, processes and benchmarks of international standards….Drivers for growth are already present in India,” says Ratan Srivastava of Frost & Sullivan.

Unlike MRO that has suffered more than just growth pains in India, tier two and three routes exist to help the market for airlines to grow.  However, nothing is hunky dory. India needs to invest more in infrastructure, Aviation Turbine Fuel continues to be taxed heavily and regulatory clearances and restrictions cannot be ignored. Airports charges can hurt.  And although India is a free economy, it doesn’t always work like one. 

So lets open the bubbly but take care not to gulp it too fast!

Pix-No help for Air India in policy

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