Indian aviation eyes Gulf windfall after FDI ruling

Backed by robust economic growth, its huge geographical expanses and a population that tops well over a billion both at home and abroad, the sky should be the limit for India’s civil aviation sector.

This could not be further from reality, with many of the country’s carriers buckling under the weight of excessive debt, high taxes and an indigenous population of whom less than one percent regularly use air travel.

Air India, the nation’s state-owned flag carrier was earlier this year granted a $5.8bn bailout from the government to shore up its leaky finances, not to mention having to contend with pilot strikes and a botched attempt to join Star Alliance.

Things are not much rosier at Kingfisher Airlines, which had the second largest market share in India until the financial crisis. In early 2012, the operator was forced to scrap all of its international routes as well as suffering the indignity of having 75 percent of its aircraft repossessed by creditors, while its debts estimated at $1.3bn led Kingfisher to be suspended from the International Air Travel Association.

A collective gasp of relief will have been let out then on 14 September, when India’s government cleared a change in policy that would allow foreign airlines to purchase shareholdings of up to 49 percent in domestic carriers for the first time in fifteen years. The decision should clear the runway for overseas parties to provide a much-needed capital injection in the industry. Given the troubles the sector is facing, though, it begs the question: India’s civil aviation industry may be up for sale, but who is buying?

Airlines in the Gulf, some of which are flush with government petrodollars and already serving a large Indian expat population, are interested, it would seem.

Neil Mills, CEO of low-cost airline SpiceJet told Arabian Business days before the foreign direct investment ruling went through that the Chennai-based carrier had held “preliminary discussions” with at least one carrier based in the Gulf.

“There have been preliminary discussions to check in principle whether there is interest on both sides and the confirmation there would be ‘yes there is’,” Mills said. He declined to disclose which airline or airlines he was referring to, although a senior industry source later told Arabian Business that Qatar Airways was one of them.

The negotiations, Mills explained, had largely been academic up to that point. “[Talks have] been on a preliminary basis, because they’ve quite rightly said ‘what’s the point in investing money in due diligence if the rule to enable [an investment] doesn’t even exist’,” he added.

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