FDI may not help troubled airlines

Foreign direct investment (FDI) or not, domestic airlines will continue to be in the turbulent zone. 

Anand Kumar and S Arun of Bank of America Merrill Lynch (BoAML) in their note on Thursday said while the FDI may pump in cash into the sector it will not change the industry dynamics materially in the near term.

They believe the regulation, which is being taken up on an urgent basis to save the sinking Kingfisher Airlines (KFA), may lead to overcapacity in the aviation sector. 

“If KFA is able to secure a foreign partner, it would likely bring back the grounded capacity back into the system which could again create oversupply. Additionally, the government has approved the turnaround plan for Air India. This would likely enable AI to expand operations and play the market-share game which may hurt the industry,” said Kumar and Arun.

Meanwhile, low-cost airline SpiceJet is already flooded with offers for investment from West and Southeast Asian carriers.

Neil Mills, chief executive officer of SpiceJet, confirmed to DNA that several Gulf and Southeast Asian carriers were interested in the carrier. 

He said FDI by an airline was an option, but denied initiating any discussion with any foreign airline.  

Two weeks back, the Union Cabinet deferred a decision on FDI because some ministries had failed to submit their responses. It is now expected to be taken up in the next Cabinet meeting.
However, a source in the aviation ministry said the FDI issue may not be part of the agenda.

“It is unlikely to be discussed immediately (next Cabinet meeting). The issue needs further consultation and within Cabinet there is strong opposition from allies (read Trinamool Congress),” said the source.