FDI in aviation may not find takers, warns IATA chief

The Hindu - Geneva,December 18, 2011 - PTI

A top aviation industry representative has expressed doubts whether allowing foreign airlines to invest in Indian carriers would attract them enough to put in money now, when the domestic industry was in a financial mess.

However, he strongly supported the need for further liberalisation of India’s FDI policy in aviation as well as slashing of high taxes on jet fuel.

“In today’s difficult environment, generally speaking, many airlines are trying to keep their balance-sheets strong rather than investing in other airlines. .... Investing in loss-making business is obviously not a winning strategy,” IATA Director General and CEO Tony Tyler told PTI in an interview here. Almost all Indian carriers have suffered losses in the past two years.

But Mr Tyler made it clear that if investment by foreign airlines was allowed, “then investments from different kind of sources will arrive. ... Certainly, Indian laws are very restrictive on foreign investments in airlines.”

If FDI policy was liberalised, “you will see foreign money coming into the aviation market, because it is a rapidly growing market. Therefore, aviation-friendly policies are required, particularly lifting the dead weight of taxation,” Mr Tyler said when asked about the proposal to allow foreign airlines to pick up equity in Indian carriers.

Describing India as a big aviation market, he said getting across the country by air was the best way. “We need good domestic air transport infrastructure to facilitate foreign investment.” To questions on high taxes in India on jet fuel, Mr Tyler said “globally, even in the bad days, fuel costs do not account for more than 30 per cent of the total costs of airlines (the world over). But in India, it is 45 per cent.”

Terming high fuel prices in India as the “main problem” which was having “a significant drag” on Indian carriers, the IATA chief said “it handicaps the whole industry. It pushes costs up. So fares have to be increased to break even. Then you will have less traffic and less revenue. It is a horrible spiral of cost. It is penalising the industry.”

He asked the government to set India’s aviation industry free by expeditiously reducing taxes, especially those on jet fuel, instead of “micro-managing” the cash-strapped sector.

Mr Tyler said the service tax on tickets and high taxes on jet fuel “should be reduced or eliminated“.

“We urge the Indian government to set the aviation industry free (from policy interventions like checking airfares). Concentrate on building infrastructure and the air navigation system. There is a lot the Indian government can do,” he said.

In India, Mr Tyler said the aviation industry contributed five per cent of the GDP, around Rs 291 crore in tax revenue, provided four million jobs and another seven million jobs through tourism and related activities.