25 per cent FDI not enough for airlines

New Delhi: Even through Civil Aviation Minister Praful Patel is moving keenly to allow foreign carriers pick up a 25 per cent stake in Indian airlines, analysts and industry experts say this will help mop up not more than Rs 1,000 crore — which is only a fifth of the capital requirement of the industry, led by Jet Airways and Kingfisher Airlines.
The expected investment has been calculated on the basis of a 100 per cent premium on the current valuations of Jet Airways and Kingfisher — two of the country’s largest carriers by market share — which require over Rs 5,000 crore.
Patel yesterday said the government might allow foreign airlines to take up to 25 per cent in domestic carriers. Carriers, including British Airways, Lufthansa, Emirates, Singapore Airlines and Virgin Atlantic, are understood to have shown interest. Since the combined market capitalisation of Jet and Kingfisher is just above Rs 2,200 crore, the 25 per cent placement is unlikely to garner slightly more than Rs 1,000 crore even after adjusting for a premium of around 100 per cent to the current market price.
Foreign carriers would attach higher valuations to Indian carriers than their current market capitalisation, going by their future business plans, which would include expansion of international operations.
SpiceJet, the third listed company which has raised $80 million from American investor Wilbur Ross, is unlikely to raise fresh funds in the immediate future. According to data for December released by the civil aviation ministry yesterday, the three airlines together account for 62 per cent of the market. Discounting national carrier Air India, which is likely to get an equity infusion from the government soon, they control around 76 per cent of the market.
15/01/09 Anirban Chowdhury/Business Standard

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Categories: Foreign Jan 2009, Indian Aviation- In General Jan 2009