India
No rush to invest in Indian carriers
It is nearly six months since the Indian government cleared the way for foreign airlines to invest in the country’s carriers, but despite many rumours, there have been no takers so far.
February 1st 2013
Investors appear to be baulking at the fragile operating environment of India’s airline industry. Late last year, when reports circulated that Gulf operator, Etihad Airways, was considering buying a stake in debt-laden Indian carrier Kingfisher Airlines, informed industry insiders said such a deal was highly unlikely. Read More »
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| Qatar Airways chief executive, Akbar Al Baker: no immediate interest in SpiceJet |
They were right. In reality, throwing money into Kingfisher, which ceased flying in October after staff went on strike over unpaid wages and with debts of around $2.5 billion, the carrier hardly promised a profitable investment. Worse still, India’s regulator announced last month that Kingfisher had lost its operating licence.
In fact, Etihad is more interested in another Indian airline, Jet Airways. It was confirmed in January that “various structures are being explored by the legal and commercial teams” from both airlines.
Insiders suggested a lot of tough negotiating is needed to overcome major issues before Abu Dhabi-based Etihad would agree to be a Jet shareholder. In the meantime, there is little sign any other Indian carrier is close to attracting an offshore airline investor.
The Times of India newspaper last month quoted sources that said SpiceJet, one of India’s more successful airlines, was talking to several foreign carriers about investment, with another Gulf operator, Qatar Airways, the “most likely” contender. Spicejet and Qatar denied the report.
Said Qatar chief executive, Akbar Al Baker: “Qatar Airways categorically denies it is interested in investing in Spicejet or any other Indian airline. This is pure speculation by individuals who deliberately want to spread such unfounded rumours to raise the stock value of their entities.”
However, Al Baker added: “India is a potentially lucrative market. Qatar Airways will be interested once we are sure the regulations and the laws are properly liberalized (in India).”
The reluctance of investors to invest in India’s airline industry is also based on high fuel costs that are heavily taxed, an intrusive government and rules and regulations that stifle growth. Making matters worse are repeated fare wars that erode airlines’ bottom lines.
Indian carriers’ problems were highlighted by Tim Clark, president of Dubai-based Emirates Airline. “What are you buying into? Would you buy into the balance sheet of Kingfisher or Air India? If the Indian government is having a tough time managing its carriers, how can we run them?” he said. “It is its implementation in the Indian environment that is a challenge.”
Despite these doubts, it is understood AirAsia’s chief executive, Tony Fernandes, is seriously considering adding an AirAsia India to his regional stable of budget carriers. Sources said there had been “preliminary discussions” with potential local partners who have to hold a controlling 51% stake in any Indian-based joint venture.
Favoured to partner with AirAsia is the Videocon Group, a major industrial conglomerate involved in consumer electronics and mobile communication services. Its chairman, Venugopal Dhoot, confirmed in January there had been an approach from the airline group.
Kingfisher insists it will fly again
Kingfisher Airlines could be back in the air by next month, according to its owner, Vijay Mallya. Sources however, said this was unlikely.
A revival plan submitted to India’s Directorate-General of Civil Aviation (DGCA) in December failed to come up to scratch. The plan was in two parts: the first dealt with a limited re-start using seven aircraft, increasing to 21 aircraft within four months. The second involved the airline growing to 57 aircraft within 12 months of recapitalization.
It is the recapitalization that concerns the DGCA. “They failed to provide additional details on the funding of operations,” said the head of the DGCA, Arun Mishra.
A spokesman for Kingfisher said there was “no cause for concern”, pointing out regulations allow for a permit-to-fly renewal within two years of expiry. “Kingfisher is confident of securing approval from the regulator for the re-start plan, licence approval and reinstatement of its operating permit,” said spokesman Prakash Mirpuri.
