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India FDI rule to open airlines to Gulf cash

SpiceJet has already said it is in "discussions" with Gulf airlines.
NEWS, Aviation

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The Indian government’s decision to allow domestic airlines to sell stakes to foreign carriers has renewed interest

The announcement by Prime Minister Manmohan Singh’s government on September 14 to open up the market means foreign carriers are now free to acquire up to 49 percent of Indian carriers.

Neil Mills, CEO of low cost carrier SpiceJet, last week told Arabian Business it had held “preliminary discussions” with Gulf airlines about making a potential investment in the low-cost carrier.

"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.

"[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.

The change in foreign direct investment (FDI) policy opens the door for Gulf carriers to push ahead with any plans to enter the market through acquisitions.

Any future tie-up between Gulf and Indian carrier, Mills said, would provide reciprocal benefits. "We've got a good network and we're carrying 36,000 people a day [and] about 1m people a month now, so we've got good feed and good catchment,” he added.

He declined to disclose which airlines SpiceJet had held these preliminary talks with, although Arabian Business understands that Qatar Airways is one of them.

Qatar Airways’ CEO Akbar Al Baker in April said anyone not interested in investing in India “must be crazy”.

Abu Dhabi’s Etihad Airways, which has pursued a series of stakes in international airlines, including Germany’s airberlin, Ireland’s Aer Lingus, Virgin Australia and Air Seychelles, also said the market was an important focus for it.

“The Indian aviation industry offers tremendous potential, with significant passenger movement on domestic and international sectors,” a spokesperson for Etihad told Bloomberg.

An executive from an unnamed Indian airline told the Wall Street Journal Etihad was “among top global airlines waiting to invest in Indian carrier”.

Emirates Airlines, the Gulf’s largest carrier, previously bought into SriLankan Airlines. However, Sir Maurice Flanagan, executive vice chairman and one of the founders of the Dubai-based airline, told Arabian Business earlier this year he believed chasing stakes in smaller airlines was “just not worth it”.

“They want you to develop that airline to be like Emirates… To do that, you have to base staff there and have senior managers going to and fro... It’s just not worth it,” he said.

“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 on Sunday.

Besides SpiceJet, the Indian carriers likely to be chasing investment include Kingfisher Airlines, Jet Airways India, Air India and IndiGo. The debt burden carried by some Indian airlines could prove to be a sizeable obstacle to any FDI, one analyst said.

“However, I'd add the caveat that many of India's airlines are losing money so we shouldn't expect to see any knee-jerk or rapid stake buying done by any of the big Arab airlines anytime soon,” said Saj Ahmad, chief analyst at StrategicAero Research.

“That would be akin to throwing good money after bad. Besides, GCC airlines are more likely to expand in India and exploit incumbent carrier weaknesses than try to invest in a struggling carrier that could take years to turn around.”
 

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