SHARES of struggling Indian airlines surged on Wednesday (April 11) on expectations that the government may decide this week to allow foreign airlines to pick up stakes in domestic carriers.
The move could throw a lifeline to companies such as cash-squeezed Kingfisher Airlines, controlled by billionaire liquor baron Vijay Mallya, which is in desperate need of funds to implement a turnaround plan.
The commerce ministry circulated a note seeking comments from other ministries and a decision on allowing foreign direct investment (FDI) in the aviation sector could be approved at a cabinet meeting on Thursday (April 12), a senior government official said, asking not to be named.
“It is correct – a decision could come this week,” the official told reporters, commenting on domestic news reports.
Kingfisher shares closed up nearly 6.5 per cent at Rs19.85 ($0.38/£0.24), bucking a weaker overall market. Jet Airways climbed 5.26 per cent to Rs358.50 ($6.95/£4.35) while SpiceJet gained 5.45 per cent to Rs29.00 ($0.56/£0.35).
Foreign airlines are barred from holding stakes in Indian airlines though other overseas investors can hold up to 49 per cent. The aviation and finance ministries have already agreed to let foreign carriers in, pending cabinet approval.
Kingfisher’s dire financial condition has discouraged domestic investors from putting funds in the sector.
Mallya, known as the “King of Good Times” for his flamboyant lifestyle, has been an ardent supporter of proposals to allow foreign carriers to buy stakes in Indian airlines.
He has told creditor banks the airline is in the final stages of negotiations with investors and will get funds to reduce its debts as soon as the government eases the aviation FDI rules.
Analysts have mentioned IAG, parent company of British Airways, and Etihad Airways, flagship carrier of the United Arab Emirates, as companies that might be interested in taking a stake in Kingfisher.
Kingfisher, which is at least $1.3bn (£814738) in debt and has never made a profit since its creation in 2005, needs $400m (£250.68m) in immediate funds to stay in business, according to the Centre for Asia Pacific Aviation, a consultancy.
Indialogged the second-best air traffic growth at 12.3 per cent in the world after Brazil in February, according to global airline body IATA. But five of the country’s top six airlines are in the red due to high fuel costs, fierce competition and an economic slowdown.
The woes of Kingfisher are reckoned to be the worst among the private carriers due to over-ambitious expansion while debt-laden state-run carrier Air India also faces a financial crisis.
Kingfisher has slashed domestic flights and shut down its international operations as part of what it calls action “on all fronts to cut costs.”
