FDI In Aviation: Why Will Anyone Buy Loss-Makers?

There are speculations in the aviation industry that the government may take a policy decision on approving the foreign direct investment in the aviation sector, allowing foreign investors to take up to 49 percent stake in domestic carriers such as Air India, Spicejet, Kingfisher, Indigo and others. This move is being analyzed from two different perspectives. While some are welcoming the move and believe that it was the one which was long overdue, some others are skeptical about its real utility.
In India the civil aviation has not been profitable for most of the carriers and therefore, after opening of the skies for the private players, there many been quite a few instances where the private airlines have bundled up in a short span of time. At present, the total accumulated losses registered by the airlines are approximately Rs 70000 crores. Given the present state of affairs of the carriers, most of which are not doing well on the financial grounds, it is only a guess game whether anyone would be interested in taking up the stake through the FDI route. Very few airlines, namely Indigo Airlines or Spicejet have done well in the past few years. But, even there the scope of FDI investment is limited because the Indigo Airlines already has substantial foreign financing and Spicejet has limited operations as compared with other carriers. This limits the options of the foreign investors. The experts from this school of thought are of the opinion that the current state of mess is the result of extravagant policy measures of the airlines and their poor management.
One school of thought opposed to the government proposal points out certain other areas where the government has failed to take effective steps. These relate to the high rates of taxation levied by the government and the permission for flights. Some expert believe that our own house shall be set in order at first before inviting the foreign investments since this might be helpful for the airlines to improve their profitability. The cheap air tickets might still be provided by the airlines since it makes them tap the latent demand of aviation in the new markets which is crucial for their growth. So, it is the cut in the aviation rates which is likely to provide relief to the airlines.
The other perspective, in favor of the FDI, is that this will make the airlines more responsible and efficient in operations. Whether the cheap air tickets would continue or would become a thing of past will squarely depend only on the financial health of the airlines. Further, there is a lot of scope for the growth of civil aviation in India since it is a big country with a fast growing economy. The business and corporate travel is expected to increase as well. This will increase the demand for more domestic as well as international flights. Thus, it is the good future prospects, rather than the current sorry state of affairs, which might form the basis of good FDI investment.

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