Business | Aviation
Overseas carriers eye India market
Government may reverse restrictions to allow them to own stakes in local airlines.
- Bloomberg
- Published: 23:25 January 25, 2009
Mumbai: Singapore Airlines Ltd, Virgin Atlantic Airways Ltd and other carriers may win the right to buy into Indian airlines as the world's second-fastest-growing major economy plans to scrap investment restrictions.
India's government is considering allowing overseas airlines to own stakes in local carriers, Civil Aviation Minister Praful Patel told reporters.
That would reverse a more than a decade-old rule that banned them from owning shares of domestic carriers.
With global traffic plunging amid a recession, India's move may give foreign airlines a slice of a market that is set to surge ninefold in the two decades to 2026, according to Airbus SAS.
The plan will also give carriers such as Jet Airways (India) Ltd and SpiceJet Ltd access to cash and expertise amid a record $2 billion (Dh7.34 billion) industrywide loss last year.
"In a global recession, foreign carriers will look at any opportunity where they can make a bit of money," said Viswanathan Vasudevan, who helps manage $300 million at Aquarius Investment Advisors Pte in Singapore. "India seems to be one of the countries where you have some opportunity. That could be a big plus."
Vasudevan may purchase Indian airline shares if the government eases restrictions for foreign carriers.
Seven new airlines have been set up in the past six years and passenger numbers doubled between 2004 and 2007, the government said.
India's domestic air traffic will grow 11.5 per cent in the 20 years to 2026, making it the world's fastest-growing aviation market, according to Toulouse, France-based Airbus, the world's largest planemaker. In comparison, China's domestic traffic will grow 8.4 per cent and the US, the world's largest aviation market, will grow 2.4 per cent, according to Airbus.
Singapore Air, the world's largest by market value, is optimistic about the long-term future of aviation in the Asian region.
The carrier "would like to see the regulatory barriers toward future investment opportunities cleared," spokesman Stephen Forshaw said in an e-mail.
But the carrier has no immediate plans to consider an investment in an Indian airline, Forshaw added.
Singapore Air, which last year suffered a setback in its effort to purchase a stake in China Eastern Airlines Corp and in 2001 dropped a plan to bid for a stake in state-owned Air India with India's Tata Group. Separately, the Tata Group in 1998 withdrew a proposal to start a domestic airline with Singapore Air, citing delays in getting government approval.
Billionaire Richard Branson and his Virgin Group, with investments in a low-fare carrier in Malaysia and in Australia, have said they will be interested in investing in India.
Branson said in 2004, he's in discussions to acquire a stake in an Indian airline in his personal capacity to circumvent the government ban on airlines.
India is seeking to attract investments amid the global recession.
Airlines globally may post a $2.5 billion loss this year after a $5 billion loss last year, according to the International Air Transport Association.
India's carriers are losing money on below-cost tickets and on payments for more than $100 billion of aircraft on order with Airbus and Boeing Co.
"The airline industry globally is in such a bad shape that we really don't see much value," said Wolfgang Prock-Schauer, the chief executive officer of Jet Airways, India's largest domestic airline.
"Airlines will think twice or thrice to invest at all because everybody is focused on core business."
Jet's shares plunged 80 per cent last year while the 15- member Bloomberg Asia Pacific Airlines Index lost three-fifths of its value.
That means carriers won't pay premiums to buy stakes, Prock-Schauer said from Mumbai.
Jet Airways recently fell 0.5 per cent on the Bombay Stock Exchange after gaining as much as 2.7 per cent earlier. SpiceJet rose as much as 4.5 per cent and Kingfisher Airlines Ltd advanced as much as 3.3 per cent.
Still, investing in India may yield long-term benefits as some of the 15 million daily train travellers start moving to air when incomes rise, said Ajay Singh, a director of SpiceJet.
The discount carrier last year won $100 million funding from billionaire Wilbur Ross and Goldman Sachs Group Inc.
"Larger airline groups need growing, compelling markets," said Kapil Kaul, chief executive officer of the India unit of industry consultant Centre for Asia Pacific Aviation. "India is a compelling market. Its long-term prospects are unbelievable."
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