Air India writes to government against FDI in civil aviation

Air India Ltd has warned the government that allowing Foreign Direct Investment (FDI) by overseas airlines in local carriers will hurt the interests of domestic airlines and prevent Indian airports from developing into international hubs, as per a Live Mint report.

The government should study the potential impact of such investment on the domestic aviation sector as a whole, Rohit Nandan, Chairman and Managing Director wrote in a letter to K N Srivastava, Secretary Aviation last month, according to two government officials.

Nandan?s letter has prompted the Ministry of Civil Aviation to start work on introducing guidelines to address the concerns, but it is unclear how far it can go beyond clearing investments by foreign airlines in domestic ones on a case-by-case basis, one of the two officials said. The guidelines are expected to be ready in a few weeks? time. Nandan and Srivastava declined to comment on the matter.

India in September 2012 allowed foreign airlines to own up to a 49 per cent stake in local airlines, accepting a demand by cash-strapped domestic airlines to help shore up their capital and reduce debt.

Jet Airways (India) Ltd and Kingfisher Airlines Ltd have since begun stake-sale discussions with Abu Dhabi-based Etihad Airways. Last week, Jet indicated it might be closer to a deal with the West Asian airline than Kingfisher, whose licence to fly lapsed on 31 December, 2012.

Nandan wrote in his letter to Srivastava that the liberalised FDI policy could hurt local airlines because overseas airlines may choose to use Indian airlines mainly as feeder services for their own operations, said one of official quoted above.

If, for example, the Jet Airways -Etihad Airways deal goes through, the national airline of the UAE will gain access to Jet?s entire domestic base of passengers, whom it can fly to the US, Canada and Europe under bilateral aviation agreements between India and the UAE, the official said.

And the ambitions of Indian airports to emerge as international hubs would be undermined because foreign airline investors will want to divert the passenger traffic to their own hubs abroad, the Air India CMD was cited as writing in the letter.

New Delhi, Mumbai, Hyderabad, Bengaluru, Chennai and Kolkata airports have spent more than USD nine billion (around Rs 49,500 crore) on modernisation since 2006. The Department of Industrial Policy and Promotion has asked the Aviation Ministry to prepare sectoral limits, but ?we don?t know what can be done?, said the second official. ?Maybe we will take them on a case-by-case basis,? he said, referring to investments by foreign airlines in India.

Air India has reason to be worried about its privately run rivals getting a boost from foreign airline investments that could undermine its own competitive edge. Troubled by high debt and other operational hassles, the state-run firm is relying on a taxpayer-funded USD 5.8 billion bailout to stay in business.

Source: http://www.travelbizmonitor.com/air-india-writes-to-government-against-fdi-in-civil-aviation-19017

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