Airline stocks gained significantly on Wednesday, on expectations of announcement of FDI in aviation later this week.
While Kingfisher Airlines gained 6.43 per cent, SpiceJet and Jet Airways stocks went up 5.45 per cent and 5.3 per cent respectively on the BSE. Trading volumes have also seen significant increase. Aviation analysts told Business Line that the Government's decision to allow foreign airlines to invest in domestic carriers would be a positive news for the sector.
Structural issues
However, a favourable FDI decision will not help the sector immediately, said Mr Kapil Kaul, CEO — South Asia, Centre for Asia Pacific Aviation. According to him, there are serious structural issues facing the sector including a negative fiscal regime and very poor balance sheets of airline companies.
“Trading conditions continue to be tough, but this move could help in structuring new well-capitalised projects subject to Government allowing new airline licences,” he added. Allowing foreign airlines could mainly help airlines such as Kingfisher Airlines, GoAir and SpiceJet. Currently, foreign corporate bodies already hold 80 per cent in Jet and IndiGo is closer to 49 per cent FDI limit, he explained.
When contacted, Jet Airways, IndiGo and SpiceJet declined to comment.
Advantage SpiceJet
Aviation and market analysts expect the Government will most likely announce the formal policy on Thursday. “The move will be most positive for SpiceJet as its debt levels are low, and it is in the highly attractive low-cost segment,” said an analyst with a stock-broking firm.
Jet Airways, with a good international business and significant position in both the premium and low-cost domestic segments, too, would be benefited, he added. This is despite the fact that Jet Airways is a debt-laden company, “as its debts are more for aircraft acquisition/leases and not working capital requirements,” the analyst pointed out.
This is a stark contrast to Kingfisher Airlines, which has more working capital loans.
According to him, foreign airlines in the Asian region such as Etihaad Airways, Singapore Airlines, Malaysian Airlines, and Thai Airways would be carriers to look out for, “as India makes a better market for Asian players than European carriers.” Likewise, low-cost international carriers such as South-West Airlines would be interested in joining hands with Indian low-cost airlines like SpiceJet, he added.