Indian Aviation FDI
 

So theres a lot of buzz about this 49% FDI approval from the GOI.

Last week it seemed a confirmed deal and yet the recent articles in the newspapers suggest that it could be on hold indefinitely.

With KF in such a precarious position, AI bailout and 9W with its undecided stance.. wheres is this all headed to?

This FDI could really change the Indian Aviation scenario and a lot of us freshers are waiting for that Indian Aviation boom again. This could create a lot of jobs, stability and expansion in this sector right?

So newspaper articles apart.. what is really going on?

I am sure that you experienced guys know a bit more than the rest of us.. care to reveal?

FDI
 

Although a welcome policy change for KFA, I don't think FDI is going to solve our problems. Sure, there'll be some interest due to the hype generated but if a foreign airline decides to invest, it is only logical that they must have an incentive to invest without a controlling stake.

Why will they do this?

The GOI instead has to take other steps to let aviation make make some money so that it is a profitable industry to invest in. There are already several expert opinions on what steps are required so not going to go into that.

In any case, aviation is a golden goose for the GOI with almost no policy framework, so they can pretty much eat all the cash they want without being obligated to re-invest it into the industry infrastructure.

No FDI
 

If our government is seriously thinking to do some thing concrete for the industry then they should declare ATF as "declared goods" this will attract uniform tax across the country. This demand is dated ages back even before some sane even thought about 49% FDI.

Any inputs?
 

Any further input people?

I am really looking forward to this.

A mere policy change wouldn't directly result in more jobs in the short term. Meanwhile, stocks of Spicejet was down 10% today as it declared its results. KFA also hit an all time low, losses of Rs.1100 crore for Q4 were reported by KFA.

Others?
 

What about the other operators here, Indigo, GoAir, Air India, Jet Airways etc? Are those results available publicly anywhere?

Also there are new airlines in the coming apparently, I hope they do well.

These Losses are absolute Market Tactics guys...Government in india is already so hard on airline business, not supporting them in any matter what so ever. hence the MDs and CEOs of these airlines are not dumb. they will always announce the negative results(in reality they are positive) only to get some soft outputs of Government. lets just use some common sense here...if all of theses airlines including Jet, Spice jet and Go air are not making any profit then why the hell those guys would sign such huge deals with Boeing and Airbus as a plan of their expansion?

Go Air places 52 Airbus order
spicejet already has a 15 Q400 confirm and 15 on options(not to mention 737 NGs)
Jet airways thinking about 100 A320 Neo....

So Guys again...its not what we hear or we see...and what actually is (we dont see it and perhaps we wont see it as well)....

Its difficult to mask profits as losses in a closely watched sector like aviation. But many a people have voiced similar opinions now and again.

Anyways, regardless of losses or profits, fact is that the Indian aviation is growing at a rapid rate. That the growth isnt exactly healthy and accompanied by profits is a matter of debate.

So, the FDI is bound to attract investors just for the expansion. The number of Indian fliers is expanding rapidly and its not just limited to the domestic markets.

The main incentive could be to use the Indian carriers as feeders for their main international operations. If they can nurture and turn around their Indian investments, great for them.

From what I hear, Jet and Indigo dont stand to profit a lot from the FDI.

KF needs it baadly. Rumors suggest an informal deal has already been struck with a European biggie. No matter what the losses, Aviation is potentially one of the most profitable businesses ever. So, keep your fingers crossed.

Spice is very interestingly positioned for this FDI. No doubt about that. GoAir is a small player, but stands to win too. AI isnt interested.

I say FDI is good for the industry and especially for the unemployed ones like us.

Also, I read in the times a few weeks ago that the DGCA is planning to make compulsory a regional service from every airline in India. This will help connect Tier I & II cities by air. This translates to regional turboprop services with ATRs, Q400s, B1900 and the likes.

Thats another move I think should help us unemployed ones..

FDI is only useful and attractive if the government in the country lets it be. India is quickly losing it's attractiveness as a place to do business, especially regarding aviation. Corruption, infrastructure, regulatory chaos make India very unatractive to businesses from an investment stand point. Even if FDI is passed I think it will be so convoluted and protection positioned that most will stay away even with the potential market India has.
A perfect example is the feeder requirement, which is none of the governments business unless they plan on paying for it. How about the large fuel tax or not letting private companies charge what they want for tickets? These and many other things will make FDI not work in India.

Not the first time I have heard such remarks about airline results. You must know the penalties applicable for incorrect reporting practices by public companies. The Ministry of Corporate Affairs(MCA) oversees the financial reporting. Remember Satyam scandal of 2009 and its aftermath? The penalties are heavy, to say the least. Risk Reward ratio for these airlines to report dismal numbers is very high.

Q. Why airlines make big orders?
Ans. Because they can. Easy availability of money. Soon it will be easier than ever before when airlines go for ECBs & FCCBs.

Ego and fear also play a big part here. Nobody wants another airline to be bigger than theirs. Indigo has done well so far. But it could be the hardest hit in the future if it is unable to fill those seats that it plans to fly after 2016. Spicejet is considered the most pragmatic of all. Their funda is-Market Share doesn't translate into higher profits. Watch out for Spicejet!

Jet Airways
Jet and JetLite have increased capacity by 18% in 2012 vs 2011. The pax have grown 16%. Staff has increased by only 354 in 1 yr. Aircraft increased from 97 to 101.2(Avg). Breakeven seat factor 91.3%. :eek:
Q4 FY12 Results
Revenues increased 24.4% as compared to Q4 FY11. Loss Rs.298.1cr vs Rs.124.5cr.

Spicejet
Total income for the year up form Rs.2937cr to Rs3997cr. Loss of Rs.605cr. Last year had profit of Rs.101cr.
Non current liabilities(Loans) up from Rs.25cr to Rs.744cr. This could add to their interest costs in the future.
Q4 FY12 Results
Revenues increased 46% as compared to Q4 FY11. Loss Rs.249cr vs Rs.58cr.

Kingfisher too sick to analyse at this stage. :=

All the listed companies result are available on their website under 'Investor relations'. Also available on BSE/NSE website and other Financial websites. Indigo, GoAir and Air India are not publicly listed. They are not required to make their results public.

Thanks
 

Thank you. Those results were helpful. Let me see if I can find a thing or two about the other airlines. So far it looks like Indigo is doing well enough, lots of reports that they're the only airline making profit around here.

Any input in the light of the recent events?

Aviation shares are up!

?
 

Recent events = ?

Well this didnt make the headlines.
But the PM promised to look into the FDI for aviation.
Aviation ministry has been asked to make amends with the opposition and see it through.

Three new airports were declared. Thats also when the AI strike was deemed worthless and considered over.

Airline shares all went up by about 5 %.
Actually Kingfisher and Jet shares are being considered prospectively 'hot shares' in the market for now.

That is some good news. Let's see what comes of it. Overall I think it is a huge but not an impossible effort by everyone in the industry. The rule makers must be forward thinking even in other aspects, just one thing like an FDI approval cannot solve anything.

Its a start...

Also other policies under consideration are compulsory feeder / regional services by every airline.
This might prompt the operators to procure turboprops and might open up more vacancies for us..

A few more here and there.. lets hope..

For clarity stakes for all 49% FDI has been allowed in Indian Aviation for the longest time. What the restriction is that no foreign carrier can hold 1% even of an Indian airline. The pressure is to allow foreign carriers to hold stakes on the assumption that they will invest in Indian carriers.

Now to analyze why they want foreign carriers to invest in Indian carriers.

Let us assume Emirates buys into KF. KF will not need to invest in larger aircraft and will essentially fill all its aircraft as a feeder for emirates, or so that is the hope. Same is if BA buys into GO then go will feed BA aircraft out of India or so that is the hope. It also gives them access to say sky world or Star.

The govt allowed them all to import fuel to reduce costs. As of now only one carrier has initiated the process.

It is my opinion that even if they open up direct investment into aviation by foreign airlines there will not be too much interest and it will fizzle in the short run.

What needs to be done is a pure rationalization of ops, the guts and the B#$lls to make sure that a good operation is put in place and instead of looking over the competitions shoulder focus on running your own business.

some more news on FDI.
the TMC has agreed to back the FDI only if the kolkata airport is modernized before the puja season in October. According to airport officials, modernisation work at Kolkata airport is likely to be completed by July, while it will take another two months to make the new airport operational.
holding the government at ransom seems to be the new game in india at the moment:}

LOL.. I love India.. things are sooo direct here.. hilarious.

@Wannabe Flyer
Could you please elaborate on the rationalization of ops, guts and balls part.

Efficiency
 

Currently, airlines are spending way too much effort *saving* money. Instead, like most businesses, they must be in an environment where they can carry out their operations efficiently and focus on *making* money. This needs to be done in conjunction with government agencies (including those like CISF, ATS etc) so that overall operations are smooth and efficient, and airlines get what they pay for. Some example of impact changes like those will have are

1. Aviation as a whole will grow, thereby paving way for pilots, cabin crew, ground staff etc to progress a natural career progression, have options of working for non-airline ops. Then the airlines probably will not have to *charge* pilots for their own type rating and exploiting employees.

2. Airlines will not have to discourage passengers from getting ticket printouts and charging them Rs. 50, if only someone like CISF accepted e-tickets or were not so security paranoid.

These are just 2 operational examples off the top of my head, but you can see that rationalizing ops will have an impact all over. From what I can see, almost no one wants to do things efficiently around here.

Sure:

Rationalization of Ops: Jet airways still inefficient use of aircraft and crew. Could do better. Sahara was an ego trip but then hind sight is 20/20. Get rid of debt by offloading some of the egotistical real estate buys. Air India/KF: Well that is an open and shut case of staff, routes and putting their foot down to freebies. Indigo: Seems to be running a decent job on paper keeping to itself, but is constantly needling the FDI by foreign airlines issues and might actually be one of the cogs in the wheel. Also has some dubious political connections but then who does not. GO air: In efficient, constantly changing tactics and not settling down. What is with the damn hot curry meals on every flight (full service) start cutting down there give and apple and a sandwich and shut up!

Guts and Balls: Take on the unions, don't bow to political pressure and try not to rely too much on it. Take the government mandate of regional routes and be gutsy about pushing that in. Last but not the least push and utilize airports like Delhi to take on some transit hubs which are taking upto 19% of your business away. International ops on taxation and the like are a leveler as access to cheaper fuel is there so where is your excuse there?

Most are steeped in Debt as their promoters have long ago sucked out their money and like typical indian promoters operate at arms length so it does not cramp their lifestyle. Come on get your hands dirty and do the job yourself and maybe things will look brighter.

I think under the current circumstances if 9W does not show a turn around in the next quarter then there is something seriously wrong with their ops. Same for GO and spice. With the fares being charged should offset all the costs

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.:D

Find Indian market lucrative, but sceptical about investment in the sector:

Foreign airlines give a muted response to higher FDI cap