Fdi in Aviation

New Delhi, Sep 21 (IANS)  Civil Aviation Minister  Ajit Singh Friday said the government's open-sky policy for foreign investment in domestic airlines  has positively affected sentiments in the  aviation industry, but it is too early to say how much investment the sector would attract. â€Å"The sector is going through difficult times and is facing financial stress due to the overall economic slowdown. But the mood is upbeat now after we (government) allowed 49 percent FDI in airlines,† Singh told reporters on the sidelines of an Assocham event here. Time will tell how many  foreign airlines  are interested,† Singh added a day after the government notified that the foreign airlines can now pick up 49 per cent stake in domestic passenger carriers. Foreign carriers have so far not been allowed to directly invest in Indian carriers for security reasons, although 49 percent FDI by non-airline players was allowed. The  Indian airlines  sector has been going th rough a tough operating environment as high fuel and interest cost have hurt it. The government expects that the decision will help bring in more funds to the airlines who have been cold shouldered by banks.The decision is particularly expected to help airlines like Kingfisher to gain capital and resume full services. Other Indian carrier's require funds for expansion and to gain market share. International airlines  have welcomed the  government move. Ccarriers like Singapore Airlines, Emirates and the  International Airlines Group  (IAG), which owns British Airways and Iberia, have said they do not have any immediate plans to invest in India. Virgin Atlantic and Lufthansa also said they were not keen on investing in India at the moment.Middle East airline Etihad Airways has said it will wait for all the modalities of the new reforms are clear. Several such overseas carriers contacted by IANS and aviation watchers said high jet fuel cost, an extremely price-sensitive market , huge debt of the carriers and contracting domestic passenger traffic are the reasons deterring them to invest. Fdi in aviation [pic] After allowing foreign airlines to buy stake in domestic carriers, the civil aviation ministry is considering issuing around 30-40 licences for non-scheduled operations. A top ministry official said that many aviation ompanies have shown interest in starting non-scheduled operations, which do not have a fixed schedule. According to sources, some of these companies have come up with renewed proposals to the ministry. This has renewed the interest of the ministry, which is now working on issuing some licences. Officials said that regional connectivity will get a boost following the decision on allowing 49 per cent foreign direct investment in the sector. â€Å"Till recently, we were not convinced with the feedback we got from DGCA (Directorate General of Civil Aviation).Now, we can think of issuing licences to non-scheduled Indian aviation companies w ho have come to us with foreign tie-ups as well. We are sure the new tie-ups in non-scheduled operations will definitely bring in good technology and  result  in better maintenance of aircraft,† said a senior official. Non-scheduled operators are carried on mostly by VIPs or flying schools, and corporate as well as government organizations. They largely have major safety issues, which has deterred the ministry from issuing such licences.Their operations remain largely free from surprise safety audits. According to Planning Commission estimates, non-scheduled operations could involve 300 business jets, 300 small planes and 250 helicopters during the 12th Plan (2012-17) owing to increasing demand. Many regional airlines that have either started or will begin their operations soon include G. R. Gopinath's Deccan Shuttle, which would offer connectivity within Gujarat. The state has good regional airport network and has non-scheduled operations being carried by like Air Mantra, owned by corporate groups.Until now, foreign airlines were allowed to participate in the equity of companies operating cargo airlines, helicopter and seaplane services but not in the equity of an air transport undertaking operating scheduled and non-scheduled transport services. Banks which were unwilling to provide funds to the airline industry due to the prevailing financial distress are slowly opening up to non-scheduled operations paving way for more investment. The government is seriously looking at expanding nonscheduled operations as scheduled airlines are unwilling to fly to tier-II and tier III towns and cities as it is not economically viable. At least, we can kick-start operations with NSOPs (nonscheduled operations) initially. There is a great potential for airlines to exploit the non-metros cities and smaller towns. We are hopeful that expanding NSOPs to these places would work and scheduled operations will also gradually pick up,† said an official. Recently, civ il aviation minister Ajit Singh had said that the government would come up with a new aircraft-acquisition policy to deal with airlines acquiring a single type of aircraft, which is causing problem in providing connectivity to smaller towns and cities.Read more at:http://indiatoday. intoday. in/story/aviation-ministry-eyes-non-scheduled-operations/1/222442. html Issues It is good news that half a dozen regional airlines want to start operations even in these difficult times. The government would do well to help with an appropriate policy and better infrastructure to go with the many concessions already made available to smaller aircraft. Regional airlines have had reasonable success in peninsular India, but not so much in the hinterland or in the poorly connected east.The biggest policy constraint affecting regional airlines is the route dispersal norms. Scheduled carriers have to deploy a certain percentage of their capacity on category II and III routes such as the northeast and J ammu ; Kashmir. The obvious intent is to ensure availability of certain minimum level of air connectivity to these destinations. But being mostly short-haul routes with less traffic, these are generally loss-making for big airlines that would typically operate large aircraft such as A-320. These regions are better suited for regional carriers with small jets and turbo-props.The forced presence of the big airlines, however, makes it difficult for such carriers to operate in these regions. A phased withdrawal of the route dispersal policy would create a more conducive regime for regional airlines. In the US, too, regional airlines — which have a far more robust business than regular big carriers — took off only when the big carrier shrank operations, post 9/11. The other issue is the lack of or costly aviation infrastructure in the metros. It increases costs and reduces operating efficiency, as turnaround time at these airports is long.Regional airlines typically have fe w aircraft, but keep them in air longer, allowing them to have high frequency or serve more destinations. The poor infrastructure makes such operating efficiency difficult to obtain. The government must think of providing smaller secondary airports in big cities from where such airlines can operate. Besides, India has nearly 450 unused/under-utilised airstrips, which could be pressed into service to open more destinations to air travel, thereby helping improve the case for regional carriers.The government must increase the FDI limit in the sector from the current 49%, and also open it to foreign airlines. G. R. Gopinath The Indian aviation sector may be in turbulence mode, but that hasn’t shaken the spirits of G. R. Gopinath, the father of low-cost air travel in India. Gopinath, who sold India’s first low-cost airline Air Deccan to Vijay Mallya, the owner of Kingfisher Airlines, is gearing up for action once again. â€Å"I have been preparing for a national launch for the past year, and I hope to be ready next year,† an upbeat Gopinath told India [email  protected]The provocation for Gopinath to take to the skies again is simple:  Kingfisher is in a financial mess. The airline is running a sharply reduced service, and if it does not manage to raise funds, it could shut down anytime. Gopinath, who sold Air Deccan to Mallya in 2006, sees this as an opportunity for his re-entry into the sector. He points out that when Kingfisher bought out Air Deccan, the two brands together had 36% market share. â€Å"I believe that the market is still largely untapped. This is an unfinished story, and I see a huge opportunity still there. In the meantime, he has reentered the skies with a different  avataar. Gopinath recently launched Deccan Shuttle, a regional airline in the state of Gujarat in Western India. Gopinath points out that apart from the big cities and towns that are connected by the Airbuses and the ATRs, India has around 500 small airst rips which are not well connected. â€Å"Gujarat, for instance, has nine airports. While all of them are linked to Mumbai (India’s financial capital in the neighboring state of Maharastra), they are not linked to state capital Ahmedabad, or to each other.My idea is to open up a new market. I am passionate about providing easy access and connectivity. † Gopinath has launched Deccan Shuttle under the banner of Deccan Charters, an aviation services firm that he set up in 1995. This was his first venture in the aviation sector. It currently has 20 aircraft (helicopters, turboprops and business jets) and operates out of 16 locations. Under Deccan Shuttle, Gopinath will begin by deploying around six 10-to-18-seater aircraft in Gujarat. Over the next three years, he plans to have 25 such small aircraft across five states.Gopinath’s  plan  is primarily to offer intra-state connectivity. But in routes where there is significant demand due to cultural or trade reasons , he will also look at inter-state connectivity. Other recent entrants in this space include Air Mantra, a unit of the Religare Group. Air Mantra launched in July, connecting Amritsar and Chandigarh in North India. Spirit Air, which operates in Eastern states like Jharkhand, Bihar and Orissa, is planning to start operations in the Southern states soon. Air Pegasus, from Decor Aviation, an airport ground handling agency, is expected to start operations later this year.Analysts are watching the space keenly. â€Å"There is a lot of potential in the regional airlines business provided the states offer the required infrastructure and policies, and the companies have the appropriate business model by way of routes, pricing strategy, etc. ,† says Vishwas Udgrikar, senior director and partner, infrastructure and transport at consulting firm Deloitte. He warns, however, that â€Å"given the current environment in the country’s overall aviation sector, players need to be cauti ous and enter the regional airlines sector with the right preparation. Jasdeep Walia, an analyst at Kotak Institutional Equities, suggests that running a regional airline could be tough. â€Å"For distances of around 250-300 kilometers, the demand will be limited, especially if the roads are good and people can cover it by car. And for distances of 500 kilometers to 600 kilometers, there is always the risk that as the demand picks up, bigger airlines will [step in]. † Gopinath’s comeback is also evoking interest. Udgirkar points out that any new entrant at the national level, despite prior experience, will find it very challenging. There are inherent challenges in this sector and formidable competition, too. † Walia adds: â€Å"This space is very competitive, and the government policies are not at all conducive. And Gopinath could not sustain his earlier venture. † Gopinath’s Air Deccan changed the face of aviation in India, but as a business per se it got grounded. His foray into logistics with Deccan 360 also ran into trouble. Whether or not he can take off this time round remains to be seen. [pic] [pic]