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    January 20, 2012

Foreign Investment Could Boost India's Beleaguered Aviation Industry

   Anjana Pasricha | New Delhi
   Jet Airways aircrafts sit on the tarmac at the Santacruz domestic
   airport terminal in Mumbai, India (2009 File)
   Photo: AP
   Jet Airways aircrafts sit on the tarmac at the Santacruz domestic
   airport terminal in Mumbai, India (2009 File)

   India's beleaguered aviation industry is hoping to be more profitable
   if the government allows foreign airlines to invest in the sector. So
   far, massive passenger growth has not translated into profits.
   By the end of the financial year in March, India's domestic airlines
   will have piled up losses of an estimated $2.5 billion. Coming on top
   of losses sustained in previous years, the aviation industry is deep in
   debt.
   But the cash-strapped sector has finally heard some good news. A group
   of ministers this week agreed to allow foreign airlines to buy stakes
   of up to 49 percent in domestic carriers. The proposal - being seen as
   a lifeline for the industry - is expected to get formal approval in the
   coming weeks.
   The Indian aviation industry is among the fastest growing in the world
   with traffic increasing by over 17 percent last year. But the industry
   continues to lose money.
   That is largely because aviation fuel prices - already high due to
   local taxes - have risen sharply. However airlines have been unable to
   offset those costs by raising fares due to cut throat competition in
   the sector.
   'Because of certain carriers undercutting, the other carriers have no
   option but to match those prices, so sometimes you do have a ridiculous
   situation where you have flight tickets which are almost the cost of a
   train journey which itself defies logic," explained Amber Dubey,
   director of aviation at consultancy KPMG in New Delhi. "So breakneck
   growth happening but at the same time it is not profitable because it
   is actually coming on the back of ticket prices which are not
   sustainable.'
   Five of India's six main carriers, including state owned Air India,
   have posted losses. Banks, to which they already owe large sums, are
   unwilling to make more loans.
   But hopes have risen that foreign airlines will provide a much-needed
   cash infusion under the new law.
   Foreign airlines have been eyeing the Indian market for some time.
   Dubey says that India's huge growth potential makes the aviation sector
   attractive despite its problems.
   'The long-term opportunity is what the foreign airlines are going to
   punt on. Right now if you look at the global traffic that is not
   growing beyond three, four, or even five percent, it is low single
   digit growth," Dubey said. "It is countries like India, China, where
   the real growth is coming, this is where the populations are. And if
   you look at air travel penetration, we [India] are not even four per