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Airline investment limits might be eased in India

May 28, 2009

NEW DELHI – Indian Civil Aviation Minister Praful Patel on Thursday called for an easing of investment rules to let foreign carriers buy stakes in local airlines and a lowering of taxes on jet fuel.

The moves are crucial to the survival of the South Asian nation's once fast-growing but nascent aviation industry, which has been hit by the global slowdown in air travel and needs easier access to funds and better infrastructure to lower operating costs.

"We are not averse to liberalization," Mr. Patel told CNBC TV18 when asked if allowing foreign airlines to invest in Indian carriers would be among his ministry's priorities. He spoke soon after being named to a second term in the post under India's new government.

Kingfisher Airlines Ltd. and SpiceJet Ltd. have been urging the government to allow them to sell stakes to overseas airlines to raise funds to expand their operations. India allows foreign companies to own stakes of up to 49% in local airlines but overseas airlines are barred from investing in local carriers directly or indirectly.

"There was a proposal, which was being examined by the previous government to allow foreign airlines … maybe it won't happen overnight but it could happen gradually, eventually," Mr. Patel said.

The global economic downturn that started last year has slowed air travel, hurting the airlines. A steep increase in jet fuel prices last year, rapid capacity expansion and higher costs due to a fall in the rupee have added to their woes.

Jet fuel -- which forms 35%-50% of a local carrier's operating cost -- costs up to 70% more in India than in regional hubs like Dubai and Singapore due to a multitude of federal and state taxes and other levies.

India's airlines -- including Jet Airways (India) Ltd. and Kingfisher – probably recorded a combined loss of up to $1.4 billion in the fiscal year that ended March 31, the Centre for Asia Pacific Aviation said earlier this month.

"The aviation industry is going through a period of turbulence," Mr. Patel said. "We need rationalization of taxes, mainly on those related to jet fuel. Toning down their expansion will help."

Indian carriers ordered more than 410 commercial planes worth about $40 billion from Europe's Airbus and another 164 planes valued at about $25 billion from Boeing Co. since 2004 to enhance their local and overseas network as Asia's third-largest economy rapidly expanded.

Airline investment limits might be eased in India
Civil Aviation Minister Praful Patel / Image via


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