Indian Commercial Aviation: Poised For Expansion

By Jay Menon
Source: Aviation Week & Space Technology

This has resulted in AirAsia receiving approval to make a 49% investment in a joint venture airline—AirAsia India—with the Tata Group and Telestra Trading. The airline is expected to launch in the first half of 2014.

The return of Tata Group to the aviation sector may boost the sagging image of the Indian aviation market, paving the way for new investments. The Tatas have a long association with civil aviation in India. In 1932, J.R.D. Tata started Tata Airlines, later renamed Air India in 1946, and subsequently nationalized in 1953. “The development [SIA's alliance with Tata] affirms India's reputation as a lucrative aviation market in the long run. We expect two more FDI deals with existing airlines. . . These strategic partnerships will help airlines such as GoAir and SpiceJet, currently in talks with foreign carriers, to have more stable cash flows. All this will bring in global best practices, greater competition, better choices for passengers and lower fares,” Dubey says.

Indian carriers are likely to see an infusion of $1.3 billion by 2015, and major international carriers, such as Qatar Airways and Turkish Airlines are showing interest in investing in Indian airlines, analysts note.

The year 2014 may also see the debate over privatizing the national carrier Air India gathering steam. Civil Aviation Minister Ajit Singh said recently he was in favor of privatizing the flag carrier, and “the government of the day will have to look at this [issue].”

Though his statement caused controversy, the minister reiterated his position, saying, “after the package of 320 billion rupees ($5 billion) equity infusion, the government will not give any more money to Air India. It will have to fend for itself . . . I am firmly of the view that government should not be in the service sector like hotels.”

Privatization of Air India has been a long-pending correction that successive governments have shied away from, due to fears of political and union backlash.

“We expect that the new government which takes over in June 2014 may seriously consider privatizing Air India,” Dubey hopes. “There is public pressure on the government not to spend the $5 billion bailout package on Air India and instead use it to reduce the large taxes on Aviation Turbine Fuel and Maintenance Repair and Overhaul and to support growth of no-frills airports in India's interiors.”

Though Air India significantly improved its operational and financial performance during the previous year, its business plan is still under attack. The carrier still suffers from low productivity, a huge interest burden, a bloated workforce, insufficient recapitalization and regular government intervention. “If the carrier is to have any chance of success, it must be radically restructured both financially and operationally. This will require a level of political will to take tough decisions, a feature that has been absent to date. If decisive action is postponed—as we expect—Indian taxpayers will bear the cost,” the CAPA consultancy argues.

India's airlines could seea combined loss of about $1.6 billion in the financial year ended March 31, 2013, with most of this accounted for by Air India and the now-defunct Kingfisher Airlines.

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