The only silver-lining in the decision is the shifting of the approval process from the mandarins of the Foreign Investment Promotion Board (FIPB) and the Civil Aviation Ministry to the automatic approval channel administered by the RBI. Established private domestic carriers such as Jet Airways, Air Deccan and Sahara may benefit immediately. Others waiting in the wings — the Vijay Mallya-promoted Kingfisher Airways, the Nusli Wadia-backed "Go Airline" and few more — may also stand to gain.

One is not suggesting that all these airlines will want FDI. But looking at the balance-sheet of Jet Airways and Air Sahara (which made losses of Rs 245 crore and Rs 195 crore respectively in 2002-03) and their communication to the Naresh Chandra Committee, they may want FDI. The Air Deccan chief, Capt Gopinath, has gone on record that he would hunt for investors to shore up the fortunes of his low-cost carrier. Interestingly, Mr Vijay Mallya has expressed dismay that foreign carriers are not being allowed to bring in FDI. In sharp contrast, Jet Airways and Air Sahara, during their discussions with the Naresh Chandra Committee and subsequently with the Civil Aviation Ministry, opposed FDI from foreign airlines. So much so, even the Civil Aviation Minister, Mr Praful Patel, raised the bogey of foreign airlines making a backdoor entry should they be allowed to invest in domestic carriers. The lobby is working the same way it did when Tata Airline was prevented from taking off. Is it not strange that such lobbies remain effective despite regime changes?

The Finance Minister Mr P. Chidambaram's efforts to seek FDI, including from foreign airlines, was aborted right at the start. Else, the Left may not have said that it has no objection on the FDI cap hike, though in private domestic airlines only. Such a myopic view has actually served to create two classes of airlines — one owned by private individuals and the other by a government that does not know which direction to head.

As per the Naresh Chandra Committee's first report submitted early this year, private domestic carriers such as Jet Airways and Air Sahara should be allowed to operate full-fledged international services. The shares of Air India and Indian Airlines should be first privately placed with domestic financial institutions and FIIs which will, in turn, appoint management boards for both carriers and subsequently expedite their disinvestment.

While the Committee pleaded for 49 per cent FDI in all Indian carriers (both public and private), it specifically noted that it would be irrational not to allow foreign airlines to hold equity. Similarly, it said there should be no entry barriers as that would artificially limit competition. But the most significant recommendation was for creating a level field to ensure fair competition. For this it wanted all airlines to maintain separate books of accounts pertaining to air transport services to ensure transparency. Such accounting standards and consequent transparency clauses are urgently required in the Indian aviation sector to get transparent FDI. The Cabinet should have built in this provision for monitoring the funding of any domestic airline project.

It is clear that Indian Airlines, being a domestic carrier, will continue to remain unattached. IA has not acquired any new aircraft to renew its fleet after 1986-1991, when it completed the induction of 31 Airbus A-320s; one of these crashed in Bangalore on February 14, 1990. The subsequent plan to buy 43 Airbuses, which the IA board approved in March 2002, remains in suspense. It is a different matter if its choice of aircraft was right considering the dramatic change in the global aviation scene and also within the country in the face of an imminent approval to private domestic carriers to fly international destinations.

None of the private airlines would have waited endlessly, like IA, to bring in new aircraft. With the Government raising the FDI cap to 49 per cent and its approval through the automatic route of the RBI will give IA the shocks. It is well known that the aircraft market is slowly hardening and comparatively newer aircraft are not easy to obtain even in the leasing market. Lease rentals have risen sharply, pushing up operational costs.

It is true that purchases are better than leasing. However, if delayed, not only acquisition but also leasing will become expensive. Any market share loss in the intervening period will get difficult to regain. IA is facing this hard fact. The entry of Air Deccan has already eaten into the market share of both IA and Jet Airways.

In this context, foreign funds should be equally welcome in IA, especially as the Government does not have money to fund it. The meagre Rs 137 crore approved by the Cabinet for clearing IA's dues incurred following the merger of Vayudoot has come 12 years after the unwanted and forced merger. In these 12 years, Jet Airways has not only acquired 41 next generation Boeings and a few ATR 70s that helped it garner a 44 per cent market share, which is higher IA's. The liberal grant of bilaterals to foreign carriers has sharply eroded the overseas market share of the two official carriers. The Government should not have the right to direct FDI into airlines of its choice. It should allow foreign fund even into the state-owned carriers. But can it? Obviously, it cannot because of the CMP. For one, the Government has tied itself in so many knots that unless it frees itself it will not be able to free the official carriers. If such knots are necessary for its survival then it should forget about the survival of IA and Air India.

The first knot that needs to be untied is to revive disinvestment in both IA and AI. For FDI to flow into official carriers, the Government will have to either divest part of its 100 per cent equity or create additional equity for allotment to foreign funding bodies, which again would mean reduction in its shareholding. Perhaps, the Government can retain one carrier and strengthen while selling off the other. In either case, it will have to be more liberal and open to FDI, especially from foreign carriers.

What is difficult to fathom is the logic of denying FDI from foreign carriers. If the Government can hold road shows in the US and Europe to invite foreign capital from telecom companies in telecom, insurance companies in insurance ventures, US-based military and defence aircraft companies for HAL, FMCG companies for making washing machines, televisions, refrigerators, and so on, in India, why not aviation?

Even China has finalised plans to induct FDI in its premier foreign carrier before it is listed in the stock market. Australia has allowed 49 per cent foreign equity in its domestic ventures.

Even the US permits 26 per cent foreign equity from foreign airlines in its domestic airlines. In large countries such as China, Australia, the US and India, the needs are different. They are unlike Malaysia, Thailand, Singapore or the EU nations, where an hour's flight will take one out of these countries' borders. Comparisons should be logical, as flight time also makes a difference in market penetration.

The Prime Minister and the Finance Minister addressed important gathering of wealthy foreign investors in the US and the UK. While the Prime Minister said foreign investors will be received with open arms, as India requires nearly $150 billion for developing its infrastructure, the Finance Minister assured foreign investors that they should not be apprehensive of the Left, as the UPA Government knew how to carry all. But despite their strong conviction that what they believed in was right, they did not seem to be having their way.

(The author is a Delhi-based freelance writer.)

More Stories on : Airlines | Foreign Direct Investment

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page