Foreign airlines on 'wait-and-watch' mode on aviation FDI

Major foreign airlines seem to have adopted a wait-and-watch approach over the government's decision to allow them to pick up 49% stake in Indian carriers, even though the government says the mood in the industry was upbeat.

Air India has been kept out of the ambit of this major policy announcement, but there have been reports about a couple of Indian carriers holding preliminary discussions with foreign airlines to attract investment.

A day after notifying the FDI rules, Civil Aviation Minister Ajit Singh said the aviation sector was passing through a difficult phase due to the economic slowdown, but "the mood is upbeat after the government has allowed 49% FDI in domestic airlines".

However, barring Abu Dhabi-based Etihad Airways, many of the major foreign airlines have said they currently do not have plans to invest in Indian carriers.

Aviation think-tank Centre for Asia Pacific Aviation (CAPA) also said, "The floodgates of investment are unlikely to open in the short term but from the perspective of improving sentiment and demonstrating that the government is committed to supporting the development of a viable airline industry, this is a positive milestone".

Etihad spokesperson has been the only one so far to have made a positive statement, saying, "Equity investment strengthens our relationships and allows us to work together with partners to identify revenue generation and cost management opportunities.

"We see equity as a positive reflection of our partnership approach. We will make such investment where we believe the commercial prospects are strong, where we see like-minded business philosophies," he said.

No-frill carrier SpiceJet recently held talks with an unidentified Gulf-based carrier for investment. Its officials had last week held "preliminary discussions" with a Gulf airline for potential investment, but no details were available.

Reports also spoke of Jet Airways' officials holding talks with airline companies in the Middle East, but sources said these talks could be on code share and need not necessarily be aimed at attracting investments.

A spokesperson for International Airlines Group (IAG), the holding company of British Airways and Spain's Iberia, said, "Our aim is to be a global airline group and we are pleased with any steps towards full liberalisation of the aviation industry. India is a key market for IAG and we will monitor the changing regulatory environment but at this stage we have no plans to invest in any Indian airlines."

Similarly, Singapore Airlines, which had partnered with Tatas to participate in AirIndia divestment in 1997 but later shied away, is also on wait-and-watch mode.

"India is an important market for us. It is a welcome move by the government but presently we have no plans. We may consider it at later stage," said Casey Ow Yong, Regional Vice President West Asia and Africa of Singapore Airlines. SIA, along with its wholly-owned subsidiary SilkAir, operates 85 flights per week from 10 cities.

Middle Eastern carriers like Emirates and Qatar Airways, which are seen as potential investors by aviation analysts, also have no plans at present to invest in Indian carriers.

"India is one of the world's most important aviation markets. While Emirates' philosophy is to focus on organic growth, we always welcome any reform which liberalises markets, including FDI rules," an Emirates spokesperson said.

Some other carriers like Lufthansa, Virgin Atlantic and Bahrain Airways also have no plans. "We have no plans to have stakes in any Indian carriers," a Lufthansa official said. Lufthansa had bought equity stakes in the past in SWISS, Austrian Airlines, Germanwings and Brussels Airlines.

CAPA feels GoAir and SpiceJet were "perhaps the carriers with the greatest prospects" of attracting foreign airline investment at present, while cash-strapped Kingfisher had "an outside chance, but a very difficult one as any deal will be complex."