Airline stocks gained significantly on Friday, on expectation of a favourable decision on FDI in aviation.

Later in the day, the Government relaxed norms for foreign direct investment in the aviation sector, allowing international airlines to buy up to 49 per cent stake in local carriers.

Positive move

While SpiceJet went up 4.39 per cent, Kingfisher Airlines gained 7.88 per cent and Jet Airways surged 1.97 per cent on the BSE. Trading volumes have also seen significant increase.

Aviation analysts told Business Line that the move will attract money for the bleeding Indian aviation sector and will help expand the global presence of Indian airline companies. The sector has been ailing due to high fuel prices. Most local carriers are cash-starved and are in need of fresh capital.

“The move will be most positive for SpiceJet as its debt levels are low. The company is already in talks with foreign players,” said Sharan Lillaney, an analyst with a stock-broking firm, who tracks the aviation company.

Cartelisation possibility

Apart from SpiceJet, Go Air, which is on a slow and steady growth path, may also gain from the move, he added.

Analysts, however, feel that Jet Airways and IndiGo may not gain much from this as they are already close to 49 per cent of foreign ownership. Both the airlines had expressed reservations in the past that allowing global players will lead to cartelisation and takeover of Indian carriers.

Burdened with a debt of over Rs 8,500 crore, Kingfisher Airlines’ has been pitching for FDI in aviation. “Considering its current debt position, it will be challenging for Kingfisher to attract foreign players,” said Nikhil Vora of IDFC.

SpiceJet had said in the recent past it was open to selling a stake to a foreign carrier if it gets the right deal.

(This article was published on September 14, 2012)
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