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HindustanTimes Thu,21 Aug 2014

Airlines talking FDI

Tushar Srivastava , Hindustan Times  New Delhi, August 11, 2013
First Published: 23:17 IST(11/8/2013) | Last Updated: 02:31 IST(12/8/2013)

With the Jet Airways-Etihad deal securing the crucial nod from the Foreign Investment Promotion Board (FIPB), the focus now shifts to budget carriers SpiceJet and GoAir, both of which are said to be in talks with foreign airlines for an investment deal.

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While the once-powerful European carriers haven't completely ruled out the possibility of buying a stake in an Indian airline, it's clearly the airlines from the West Asia which are competing with Southeast Asian carriers to grab a pie of the lucrative Indian market.

India has turned into a big investment opportunity despite the fact that most domestic carriers are bleeding. Indian carriers lost an estimated R10,000 crore in 2011-12 on the back of an Rs. 19,000 crore loss over the previous three years. Indian airlines' debt burden will soon reach $20 billion (about Rs. 120,000 crore).

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However, despite the huge losses, India remains an attractive market. By 2020, traffic at Indian airports is expected to reach 450 million, making it the third-largest aviation market in the world. About 90 million passengers (per annum) are projected to pass through Delhi alone.

The international passenger traffic in and out of India in 2013 was 43 million — an increase of 5.5% over the previous year.

Three of the airlines in the top nine were from the Gulf while two were from South Asia while 40% of all international traffic from India is West Asia-bound. Not even a single European or American carrier featured among the top nine.

"West Asia carriers have game-changing expansion plans and would need continuous access to markets. India's international traffic growth, possibly for next 2-3 decades, is strategically crucial to their future plans," said Kapil Kaul, South Asia CEO of aviation consultancy firm Centre for Asia Pacific Aviation (Capa).

"We expect one or two more foreign airline investments in 2013-14, but continuing losses with huge debts and a deteriorating business environment coupled with serious structural instability in the industry might impact the final outcome."

The grounded Kingfisher Airlines is no more an attractive investment while IndiGo, the country's most profitable carrier, is an unlikely candidate as 48% in the airline is already owned by a US company. A stake sale in Air India, as suggested by a government committee in 2011, also remains a possibility.

The Indian government's willingness to rework bilateral agreements with countries whose airlines are willing to invest in Indian carriers, as seen in the Jet-Etihad deal, makes investment in an Indian airline an even more attractive proposition.

Etihad, which did not even feature among the 10 carrier international carriers operating to India, is likely to emerge as a big player following the deal with Jet.

While Emirates has 185 flights a week from 10 cities, Qatar has 95 flights per week from 12 cities and Etihad has 63 flights a week to nine cities, a figure which will be ramped up fast.

Following the India-Abu Dhabi bilateral agreement, UAE carriers now have entitlement to operate 120,000 weekly seats to India. Sources said Emirates and Qatar have sought around 50,000 weekly seats each, while 20,000 seats have been sought by Air Arabia. Further 20,000-30,000 have been requested by other West Asian carriers while Turkish Airlines has sought increasing weekly frequencies from 14 to 56.

Foreign airline investment will no doubt prove to be a game-changer for Indian carriers. While Jet Airways could become the first Indian carrier to operate the Airbus A380, leased from Etihad, SpiceJet could be in a position to place order a Boeing B737 Max with a new investor on board.

Industry experts feel that new start-up airlines, on the lines of AirAsia India, could turn out to be the preferred route for foreign airlines to gain entry into India.


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