I really don’t know whats this fuzz all about on FDI…..??? foreign investment in aviation has always been permitted. As per DGCA foreign direct investments are permitted at 49% in Indian carriers and For NRI’s its 100 %. Now the only issue is to allow FDI by foreign airlines in Indian Carriers.
The real Issue is Indigo & Jet Airways have already substantial foreign ownership. For example, Jet Airways is owned over 60 per cent by foreign entities .Then Regarding the Kingfisher I dont think investors will be keen on putting their money into debt ridden carrier where in the accumulated debt is around 8000 crores & cumulative losses is around 7000 crores. It will never tally as far as a potential Investor is concerned. So far the Total Accumulated debts by all indian carriers is over 80000 crores & Cumulative losses is more than 43000 crores creating certain back foots for Investors in this sector. Also security concerns obstruct Middle East & Chinese airlines from Investing in India leaving only European & American carriers on the run which is far likely not to happen in near future.
. Now you guys tell me How many airlines in the world is able to turnover things in India……???
This Move will definitely help Go Air, Spice jet & New Airlines who are planning to launch their operations.
The amendment under discussion is to allow foreign carriers to have ownership. Second, and more important, capital infusion can never be a solution to a weak business model.
I doubt any foreign carrier's ability to miraculously turn around the fortunes of any struggling domestic airline due to the inherent structure of the Indian aviation scenario.
The core issue has been the extremely commoditised nature of the business, where fuel price alone determines profitability (45-50 per cent of the total cost).
Airlines have displayed almost no ability to raise fares and when they tried it during the peak season, the government came running to put a lid on the increase in ticket prices.
Airlines struggled to break even two years ago. Do we really think that with over 70 per cent increase in crude prices over the last two years and barely 20 per cent increase in fares, airlines can actually make money?
Also, fuel for domestic routes is nearly 50 per cent more expensive than the international routes due to higher taxes. Airlines have asked for permission to import ATF directly and this has been granted.
Nevertheless, the logistics have not been tied up and the first consignment still not arrived. Even if an arrangement is worked out, I am sure the logistical arrangement would be extremely complex and the entire benefit would not be passed on to the airline.
At the same time, if the government does not mind the loss of revenue from ATF taxes, would it not be simpler to just cut the tax rates? The government has also tried to control the flight routes of airlines and by forcing them to fly on certain unprofitable ones and not fly on profitable ones.
At the same time, other issues such as doing away with airlines' ground staff, increasing service charges, higher ATF charges such as the one for Delhi Airport will only increase the cost structure for these airlines.
Aviation has globally been notorious for being the most unprofitable industry, with only a few airlines making profits. The added complexities of Indian aviation have made it even more difficult to survive; Jet Airways has lost money over the last five years and SpiceJet has made a profit in only two of the last five years.
Many others, like NEPC, Damania and East-West, failed to survive. I'm sure that even Singapore Airlines would struggle under the current conditions of Indian aviation.
The last question is this: Which company can raise how much money? Jet Airways cannot, since it already has more than the prescribed level, courtesy the Tailwinds holding.
Kingfisher would need to raise at least Rs 3,000-4,000 crore (Rs 30-40 billion), but even if it dilutes 50 per cent, would someone really pay six times the current valuation for a company in the news for all the wrong reasons over the last four months?
Air India seems to be an even bigger monster, with greater unknowns. Relatively speaking, SpiceJet, GoAir and IndiGo could be bigger beneficiaries.
Merely announcing FDI is the equivalent of putting a band-aid to a car accident victim. The problems of Indian aviation are much deeper.
Capital infusion can only delay the inevitable but cannot be the solution. Making money in this sector on a sustainable basis for companies and investors looks almost impossible. At best, one can make a trading bet for the short term.
