| BEIJING, June 12
BEIJING, June 12 With a potential air market of
hundreds of millions of people, airlines ought to be hammering
on India's door - yet global airline executives say it would be
madness to invest in a domestic carrier there, even if they were
Although India's economy is not the investor darling it was
some years ago, the 1.2 billion population includes a sizeable
middle class with increasing disposable income and the desire to
go places. It's a sprawling nation, trains are packed and their
safety record is poor, so the potential for air travel is huge.
But there was little enthusiasm for India at a major
airlines summit in Beijing this week.
"Anybody who is looking at India now is going to say it's
going to be an extremely difficult proposition. There is a
reward, access to a vast market, but the execution of that is
the question," Tim Clark, president of Dubai's Emirates
Airlines, told Reuters.
"You cannot afford to let civil aviation be a lame duck, not
in something the size of India. You will have to find a way to
make it work."
A notable absentee at the International Air Transport
Association (IATA) meeting was larger than life Indian tycoon
Vijay Mallya, whose Kingfisher Airlines is ensnared in
dramatic losses and has been suspended from the group's
international settlements systems.
Other Indian airlines like Jet Airways and Spicejet
are also in the red.
Foreign airlines are not allowed to take a stake in a
domestic Indian airline but the government has been sitting for
years on a proposal to allow them to take a maximum 49 percent
share. The move could be passed by parliament later this year.
The big issues are the high cost of jet fuel and airport
charges, which are the highest in the world. Then there is the
lack of political will to push through economic reform,
alongside strangling red tape and a lumbering bureaucracy.
On top of all that is state-run Air India. The carrier is
hard hit by a pilots strike but is in line for a $5.8 billion
taxpayer bailout, and recently slashed fares.
"You have got to address that big white elephant Air India,"
said Azran Osman, the chief executive of Malaysian low-cost
carrier Air AsiaX, which suspended its India operations
"If it continues to behave the way it is, you can make it
100 percent foreign ownership, and no one's going to be
Willie Walsh, chief executive of IAG, the owner of
British Airways and Iberia, said he does not see reforms on
foreign ownership taking place in India.
"But even if they do, so long as you have a state that
continues to provide funds to an airline that is inefficient and
is dragging down the rest of the industry I think it would be
madness to invest."
It's not all gloom and doom however - India does have some
supporters who say what works in its favour is a market size
just about a fifth of China's.
"Today what airlines have tapped is very, very small
relative to the size of the population," said Kiran Rao, an
executive vice-president at Airbus and president of Airbus
"What you will see is that India's economic story will
continue to succeed. It may go through its ups and downs, but
the long term potential for India is very strong."
"A lot of airlines across the world are interested to join
the Indian market ... India is still a very young market. Five
years down the line, competition will dictate that these issues
get sorted out," Rao, whose firm builds three-quarters of
India's aircraft, told Reuters.
If and when rules are relaxed, foreign airlines are likely
to set up a new carrier with an Indian partner, rather than sink
money into an existing concern, industry insiders said.
India's airlines are reeling under a debt load of $20
billion, and overall lost more than $2 billion in the fiscal
year that ended in March.
"Foreign airlines do not necessarily have to invest in an
existing carrier. They can always invest in a new carrier and
that is very much a part of their plans," said a source familiar
with foreign airlines' plans.
"Look at Indigo. Just a few years back, it started from a
plain clean paper, without any debt load. Look where it is now -
right at the top," said the source, who declined to be
identified because the plans are private.
Indigo - the only airline making money in India - recently
toppled Jet Airways to be the biggest airline in India in terms
of a single brand's market share.
Jet, with its low cost arm, JetKonnect, had a market share
of 28.2 percent as of April, while Indigo enjoyed a share of
23.8 percent. JetKonnect contributed 6.8 percentage points to
Jet Airways' market share.
Kuwait Airways, which held a stake in Jet before the
government barred foreign ownership in 1997, will evaluate
opportunities to own a stake in a local carrier when new rules
come into force, its deputy planning director of international
"We have 500,000 Indians living in Kuwait, that's out of a 3
million population. It's a big number ... if we have the
facility to fly more flights, we will do that," Saud A
Al-Mokhaizeem told Reuters on the sidelines of the IATA meeting.
"India is a very big market, not only to the Gulf, but also
to Europe and U.S.A. Despite the yields not being that big
because of competition, the volume business is high."
Airlines want to invest in a country which is growing at a
fast pace, has a huge population and an "unbelievable market
potential," and tend to ignore the negatives, said Dinesh
Keskar, a senior vice-president at Boeing who oversees
Asia-Pacific sales, including India.
"At the end of the day, you are going with your eyes wide
open. It will hopefully will get only better from here on, and
if they can make money in this environment, they can make money
in any environment."
But the sceptics appeared to be far greater in number. Many
industry insiders believe that without the government relaxing
taxes, airport charges, and bringing in other reforms, it will
be difficult for Indian carriers to attract any foreign
"Lifting the foreign investment limit is obviously a move in
the right direction. But that, in itself, is not going to be an
answer to everybody's prayers," said Tony Tyler, the chief of
the International Air Transport Association, which represents
more than 80 percent of the global airline traffic.
"You need to be think about this as a business. What do
businesses need? They need capacity, (but) they need to be