Tuesday , 23 January 2018
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The Air India ramp at Mumbai CSMI Airport. Photo by and copyright Devesh Agarwal.
The Air India ramp at Mumbai CSMI Airport. Photo by and copyright Devesh Agarwal.

To attract buyers Government allows 49% foreign investment in Air India

In a bid to attract more bids, the Union Cabinet of the Government of India, has allowed up to 49% Foreign Direct Investment in the national carrier Air India which is up for disinvestment.

In a release the Government said “It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49% under approval route in Air India subject to the conditions that:
i. Foreign investment(s) in Air India including that of foreign Airline(s) shall not exceed 49% either directly or indirectly
ii. Substantial ownership and effective control of Air India shall continue to be vested in Indian National.”

In July 2017, the government decided to disinvest the airline which accumulated debts and losses over $10 billion. However, till date the only publicly stated expression of interest has come from India’s largest domestic carrier IndiGo. However, IndiGo is only interested in the international operations of Air India, not the domestic. (Read our analysis on the IndiGo bid).

Quite clearly, the government has received an unacceptable number of bids. Today’s decision is realistic and sensible move by the Government to attract more interest in the national carrier.

Tata Singapore Airlines Vistara

One company most Indians would like running Air India, again, will be the Tatas, the founders of the airline, which the Nehru Government nationalised in 1953.

Today, the Tatas own two airlines in a 51%-49% partnership (to comply with the 49% FDI norms); with Singapore Airlines, Vistara, and with AirAsia, AirAsia India. Earlier this week, in response to a question if Vistara would consider bidding for Air India CEO Leslie Thng was quoted saying “I think Singapore Airlines has an open mind. It really depends eventually on whether there is a business case.”

Singapore Airlines has a connection with Air India as it was advised by the latter, when the island nation’s carrier was just spreading its wings.

Last year we opined “Vistara is constrained by the airport saturation at the corporate capital of India, Mumbai.

By opting for just the international operations of Air India, IndiGo opens the field for Vistara to buy Air India domestic and get those vital prime-time slots at Mumbai and all other slot constrained airports across India. The icing on the cake would be the Air India A320neo fleet powered by CFM LEAP-1A engines, the same that Vistara is already using.” In addition, Vistara buys capacity from rival airlines in tier-II and tier-III markets to fulfil its routes dispersal guidelines requirements. The Air India domestic network serves many of these markets. Its acquisition will give Vistara a ready-made network.

Middle east carriers

Today’s decision also opens up the possibility of one of the Gulf’s heavy-weights to bid for Air India. Will Emirates, Etihad or Qatar Airways join the fray? Abu Dhabi-based Etihad has burnt its fingers with Alitalia and Air Berlin. We don’t see it having the appetite. Emirates is also most likely no, as it likes to focus on Dubai and its own network. Qatar Airways is the unknown. It likes to invest in other airlines, and is facing an embargo with its neighbours which has curtailed its demand and operations.

Spicejet is wanting to expand its operations beyond its current short-haul international, even placing orders for Boeing wide-bodies. Will it tie up with a foreign carrier or foreign sovereign fund?

Share your thoughts

What are your views on this development? Which parties do you see participating in bidding for the Maharajah?

Share your thoughts via a comment.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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