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FDI in aviation: Should foreign investors jet in?

The writer looks at the policy decision of allowing FDI in aviation and its implications on the industry

It is exactly ten days since prime minister Dr Manmohan Singh made the bold announcement permitting 49% foreign direct investment (FDI) in aviation apart from FDI entry into multi-brand retail. Plus a host of other far reaching decisions that would revive the investors’ confidence everywhere.


For several months now, Air India has been in the news for a variety of wrong reasons, not exactly pleasant to repeat here. The biggest financial boost from the government has not been able to revive it to its former glory though the Dreamliner has landed for it in India.


Kingfisher in the south, spearheaded by Dr Vijay Mallya has been in doldrums as well, heavily overburdened and under financial strain. It may be recalled that Capt Gopinath’s

Air Deccan, really the people's airline, was gobbled up by Kingfisher, couple of years ago.


So, in the aviation industry, two of the relatively smaller airlines, SpiceJet and Go Air, have been making waves and really ruling the sky with customer service and competitive fares. Their occupancy figures have been good, too.


Will foreign investors who have been closely monitoring the Indian aviation scene show interest to enter the market, now that 49% holding is permissible?


Yes, it is most likely, but it is too early to predict the moves in this sector as discussions and negotiations are probably being held in secret!


We now turn our attention to the unfortunate marriage of Indian Airlines with Air India.  Even after years of their tying the knot, there has been no teamwork or cohesion amongst the personnel who man the airlines, as their relations have remained strained from the start, in terms of seniority, parallel authority and so on, as reported in the media from time to time.  But the government continues to fund the airline, because of prestige issues, but this has to stop at some point of time.


Why not now let the government take a bold decision on the aviation industry itself?


If government has already made serious efforts to privatize state-owned companies by disinvestment, then Air India should be Balkanized in terms of profit making and losing sectors. Without any compunction, loss-making sectors should be closed. Profit-making sectors should be spun off into independent companies. 


For example, if the India-Gulf sector is profitable, let there be Air-India-Gulf Ltd; likewise, Air-India-Orient Ltd will cover the Far East sector and so on. Having decided on such a bold move, let the government permit FDI-Airlines in the newly-established companies up to 49%.


There is no question of prestige issue involved in having a loss-making route to UK, USA or to Europe or Australia. Profit making with excellent customer service should be our prime concern and nothing else. Period.


Having said that how do we welcome the FDI entry in the domestic sector?  With open arms, of course!


Such a move will truly bring in much-needed capital and technological support. Safety and service will improve. The only provision that can be made is that employment opportunities should be open to Indian nationals without any restrictions.


Also, FDI-Airlines need to help, develop and invest in opening up three to four new approved (by the civil aviation ministry) airports every year of operation and commit to extend service to these destinations. They need to establish hanger and maintenance shops in at least four major entry/exit points and foreign personnel, if employed, will be subject to usual security clearances in the normal way.


While talking about this industry, we must place on record the great service that Tatas have rendered in handing over Air India to the government years ago on a platter. Now that Ratan Tata is free from other industrial worries and a qualified pilot himself, with years of business acumen, why not hand over any one of the sectors, even if loss-making, to him? He is one guy who can turn it around into profit. And it is time that the civil aviation ministry wakes up to its moral responsibility and seeks his advice and assistance in true patriotic spirit, to which he will respond positively.


New entrants under this scheme should be able to commence operation within six months and have the infrastructural facilities within 12 months thereafter.


Finally, any international airline that can set up a manufacturing hub, to cover its interest in India and the Far East (or elsewhere for that matter); will have the first preferential treatment under this scheme! India has the necessary industrial base and manpower potential for such a venture to operative successfully.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)


SBI hopeful of Kingfisher coming up with 'tangible' plans

SBI expects Vijay Mallya to come up with something tangible for the survival of Kingfisher Airlines in the wake of liberalisation in FDI in aviation

Mumbai: State Bank of India (SBI), the lead lender to Kingfisher Airlines has expressed a hope that the company chairman Vijay Mallya will come up with 'something tangible' for its revival in the wake of liberalisation in foreign direct investment (FDI) in the sector, reports PTI.


"We are quite hopeful ... we are waiting for a mutually convenient date and I think to my mind he (Mallya) will come up only when there is something tangible," Pratip Chaudhury, Chairman of SBI told reporters in Mumbai.


The negotiations have to be conducted in greater confidentiality and with some patience as it is not an investment alone, it is the valuation in the price, he said.


"But if you see the stock prices of aviation companies, including Kingfisher, going up, which obviously is indicative of higher interest from the foreign aviation companies," he said.


SBI, the leader of the 17-member consortium, has an exposure of Rs1,500 crore to Kingfisher Airlines. Earlier it had termed this as an non-performing asset (NPA). Banks together have an exposure of nearly Rs7,000 crore in the airline which have all become non-performing assets since January.


"At one point it (Kingfisher) looked absolutely hopeless. It looks relatively better (now). But still we do not have definite pointers to that. But it is a very good name, from all accounts. (In) UB Group, Mallya is very keen to retain control because his entire branding, entire image revolves around Kingfisher, lot of his products are named around Kingfisher," Chaudhury said.


Earlier, the lenders consortium had asked Mallya to personally make a presentation on turnaround plan. They had also asked HDFC Securities to do a valuation of property belonging to the promoters in Mumbai.


"We think they will do everything possible, including big sacrifices, to keep that name going. And we have his personal guarantee which shows his commitment and the UB group, in itself, from its liquor business, from its other unrelated business, can unlock a lot of cash which we think would be deployed here. And aviation is a high capital business so only companies with deep pockets can sustain," he added.


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