Investors Shun Struggling Indian Air Transport Sector(Filed from KL- AAPA Assembly in Nov)

AIN AIR TRANSPORT PERSPECTIVE » DECEMBER 10, 2012

by  NEELAM MATHEWS

The failure of Kingfisher Airlines to meet deadlines for repaying debts accounts for one of several factors that have discouraged investment in India’s air transport sector. (Photo: Neelam Mathews)

December 10, 2012, 10:00 AM

Policy-making paralysis over much-needed reforms and liquidity concerns raised by the grounding of Kingfisher Airlines has deterred investors, vendors, lessors and suppliers from doing business in India’s air transport sector, according to delegates attending last month’s Asia-Pacific Airlines Association Assembly of Presidents in Kuala Lumpur.

“Airlines in India are scared of rising fuel prices and airport charges, and are waiting for the regulatory environment to pan out,” a senior AAPA airline executive told AIN, speaking on condition of anonymity. “Besides, we do not expect much to move in India until the elections are over [in 2014] so we lose another two years.”

Meanwhile, the failure of cash-strapped Kingfisher to meet a deadline for repaying the agreed $1 billion out of $1.5 billion it owes a consortium of 17 Indian banks has raised doubts about whether the airline can restart operations, further eroding confidence in the industry overall. “Everybody is losing money there so we are not looking at India for a while,” an executive with Bangkok Airways said.

India’s inability to maintain and expand its infrastructure to cope with passenger growth continues to dampen its huge potential, according to AAPA. “As India’s traffic doubles, it has implications for fleet [size], air navigation [infrastructure] and airports,” said the association’s director general, Andrew Herdman.

The government’s recent move to allow direct investment in Indian operators by foreign airlines hasn’t sparked the interest envisioned. While background talks have started between Abu Dhabi-based Etihad and Jet Airways, AirAsia CEO Tony Fernandes has dashed expectations that he will expand in India, insisting, for example, that he harbors no intention of bidding for budget carrier SpiceJet, as many speculated. His long-haul operation, AirAsia X, has ended its money-losing services to Mumbai and Delhi.

Still, Dinesh Keskar, Boeing senior vice president for the Asia-Pacific region, remains confident that the U.S. airframer’s bullish projections for India to buy 1,450 new aircraft worth $175 billion over the next 20 years will prove well founded. He has insisted that better capacity management will result in improved profitability for Indian airlines.