The Economic Times :
The government's reported plans to allow foreign airlines to invest in local airlines are wholly welcome . The cash-strapped domestic aviation industry should have access to risk capital that has knowledge of the vagaries of the airline business. The policy on foreign investment in aviation is restrictive now. No foreign airline can pick up equity - directly or indirectly - in a domestic carrier, except in cargo airlines. Financial investors such as private equity funds and non-airline companies that have no connection with a foreign carrier are allowed to invest in a local airline.
Making expertise in a business a disqualification makes for little sense. Private domestic carriers needs capital, more important, informed capital that understands the dynamics of the airline business. Fears in the past of a foreign takeover of the Indian skies look entirely misplaced now. Also, differences among private domestic carriers over allowing foreign airlines have narrowed down after the financial crisis that hurt their profitability, already hit by surging fuel costs and fierce competition. Opening up the sector would help capital inflows and technology collaborations .
Foreign carriers could also be more patient with losses. For them, growth prospects are promising in India with domestic passenger traffic growing by 15% each year. Lifting the ban is in order. However, a cap of 24% or less will keep foreign carriers away. The government should be open to taking the FDI limit in domestic aviation beyond the current 49%. The estimated losses of domestic private carriers stood at . 3,500 crore in the first half of this fiscal year.
The government's plan, if implemented, will help carriers such as Kingfisher Airlines that desperately needs capital to repay debt, besides SpiceJet and Jet Airways. Budget airline Indigo is the only one to make profits among the big carriers. State-owned Air India has the highest losses and is seeking massive capital infusion. As we have argued earlier, the government must come up with a timebound sale plan for Air India. A potential suitor could well be a local airline partnering with a foreign airline, with cash and expertise to spare.
Making expertise in a business a disqualification makes for little sense. Private domestic carriers needs capital, more important, informed capital that understands the dynamics of the airline business. Fears in the past of a foreign takeover of the Indian skies look entirely misplaced now. Also, differences among private domestic carriers over allowing foreign airlines have narrowed down after the financial crisis that hurt their profitability, already hit by surging fuel costs and fierce competition. Opening up the sector would help capital inflows and technology collaborations .
Foreign carriers could also be more patient with losses. For them, growth prospects are promising in India with domestic passenger traffic growing by 15% each year. Lifting the ban is in order. However, a cap of 24% or less will keep foreign carriers away. The government should be open to taking the FDI limit in domestic aviation beyond the current 49%. The estimated losses of domestic private carriers stood at . 3,500 crore in the first half of this fiscal year.
The government's plan, if implemented, will help carriers such as Kingfisher Airlines that desperately needs capital to repay debt, besides SpiceJet and Jet Airways. Budget airline Indigo is the only one to make profits among the big carriers. State-owned Air India has the highest losses and is seeking massive capital infusion. As we have argued earlier, the government must come up with a timebound sale plan for Air India. A potential suitor could well be a local airline partnering with a foreign airline, with cash and expertise to spare.
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