Business, Economics and Jobs

IndiaInc: Playing favorites? Allowing FDI in aviation would boost Kingfisher, hurt Indigo and Jet


Kingfisher Airlines air hostess leave Bangalore International Airport on February 21, 2012 in Bangalore. India's Kingfisher Airlines was struggling to avoid closure as regulators ordered it to prove its operational viability after mass cancellations of flights.



India looks poised to allow 49 percent foreign direct investment in the aviation sector when the prime minister's cabinet meets Thursday, the Economic Times reports. But with the rule change effectively acting as a quasi-bailout for beleaguered Kingfisher Airlines, is the government playing favorites?

Vijay Mallya, beer baron and self-styled "king of good times," has admitted that despite his supposed business acumen it will take a miracle or a "policy change" to save the airline he launched in yet another attempt at aping Virgin's Richard Branson a few years back. But as a member of the upper house of India's parliament, the Rajya Sabha, he's lucky enough to have the political juice to make that happen.

He's not the only potential beneficiary, of course. The change could be good for state-owned Air India, too, which is just as bad off but considered too big to fail -- but only if the government ever decides to sell the albatross rather than sending billions of good money after bad to keep it afloat. And consumers might benefit from the entry of new players (though that will make it even harder for anybody to make a buck).

With fierce competition and high fuel prices hitting everybody, the aviation boom that saw carriers fighting over pilots and India adding nearly 20 international airports last year is officially over. So what are the stakes?

Here's ET:

Foreign carriers such as British Airways, Singapore Airlines and Emirates are banned from investing in the aviation sector, though financial and other non-airline investors can invest up to 49% in Indian airlines.

Kingfisher Airlines and GoAir, owned by the Wadias of Bombay Dyeing, have strongly lobbied for relaxing the Foreign Direct Investment ( FDI) guidelines but others like Jet Airways and IndiGo do not favour the entry of foreign carriers.

Not all Indian carriers may benefit from government's move to allow FDI in aviation. "Because of their large foreign ownership, Jet and Indi-Go are unlikely to be eligible for FDI from foreign airlines. Others such as Kingfisher, GoAir and SpiceJet can expect fresh funding through this route," said Kapil Kaul, India head of the Centre for Asia Pacific Aviation.

In other words, that means for Mallya a loosening of the rules on FDI is a double whammy, because his more successful competitors at Jet Airways and Indigo Airlines already have high enough foreign shareholding that they won't be able to tap additional funds from foreign players.