Civil aviation minister Ajit Singh’s proposal to allow foreign airlines to acquire a stake of upto 49 per cent in Indian domestic carriers has a good chance of being accepted, as it is inevitable. There is no other viable solution to lift the airline industry from the morass it is in. In normal times one sees mergers and consolidation with healthy entities taking over sick or not so healthy entities.
But these are hardly normal times. Domestic airlines, with perhaps one or two exceptions, are bleeding. Airlines that have taken over other ailing airlines are themselves making losses. In fact, part of Kingfisher’s problems, besides its mismanagement, is that it took on huge losses onto its books when it acquired the loss-making Deccan Airways. Air India, the national carrier, is in the dumps, living on hand-to-mouth doles from the government, whose reckless policies had in the first place brought the once-proud airline to its knees, facing debts of over `30,000 crores. Now, after using public money to bail it out unsuccessfully, the government has few options other than to agree to the proposal made by Mr Singh’s ministry.
The sickness of airlines is now threatening the banks: the State Bank of India has already declared its loans to Kingfisher as “non-performing assets”. Several other banks who have airline loans on their books have little hope of getting their money back. While Air India can get a government bailout, that option is ruled out for private carriers. Mr Singh’s proposal has reportedly got a nod from finance minister Pranab Mukherjee. In almost all countries, with the possible exception of the United States, foreign airlines are permitted to take a minority stake in domestic carriers. The proposal for foreign airlines to take a stake in Indian carriers has been with the government for several years: the proposal was first made by the BJP-led NDA government at the turn of the century. But powerful vested interests made sure it did not happen as they feared competition. Mr Singh’s predecessor, when pushed to the brink, had agreed to foreign airlines taking a 24 per cent stake in domestic carriers.
Mr Singh’s proposal provides some light at the end of the tunnel: many are hoping that the proposal goes through. While there are doubts in some quarters if foreign airlines would want to take a stake in loss-making airlines, the point it is hardly relevant. Carriers like Singapore Airlines and Emirates might well jump at the prospect, given that their own markets are saturated. One hopes that since the government only appears to act when it is pushed to the brink, this proposal will go through without any further waste of time.