Open up the skies

The Indian airline industry is going through serious financial stress because of factors including the economic downturn of 2007-08, the Mumbai attack and the fluctuating price of Aviation Turbine Fuel (ATF). Besides Air India, which seems to have developed a terminal illness, even airlines like Jet Airways and Kingfisher are haemorrhaging. Perhaps their initial business model of a full service airline has proven to be a disaster, and low-cost carriers (LCC) have taken over the majority of traffic.
Many of the industry’s current problems lie in the tenets of the Chicago Convention of 1944 and its allied agreements. These accords provided for the nationality of aircraft and airlines with a provision of ‘substantial ownership and effective control’ by the nationals of the country where the airline was registered. This implies that majority ownership shall remain with the nationals of the given country. Hence, worldwide, FDI cannot exceed 49% in an airline. Domestic airlines are considered to be local issues and majority foreign ownership in domestic airlines is a taboo worldwide, barring a few recent exceptions.
Under current agreements, airline industry players are unable to merge and acquire each other, unlike other industries. The airlines started to adopt new measures and mechanisms to bypass this problem. This was done through a new concept of code sharing, joint ventures, profit sharing and global alliances.
02/04/10 Sanat Kaul/Financial Express

To Read the News in full at Source, Click the Headline

Categories: Indian Aviation- In General Apr 2010