By Ian Bhullar
Aug. 6 – As Jet Airways and SpiceJet post surprising profits for this quarter, hopes are raised for a partial recovery of India’s aviation industry.
Jet Airways released its quarterly profits last Friday, reporting INR247 million earnings between March and June. SpiceJet reported positive earnings earlier in the week. These profits are a great improvement over previous quarters: Jet Airways has not recorded profits in five quarters, and saw peak losses of INR1.23 billion a year earlier.
Reuters reports that the two airlines have been successful in plugging the gap left by other airlines more deeply affected by trouble in the overall industry. For this reason, however, Jet Airways’ profits may encourage pessimism more than optimism about the health of aviation in India.
State-owned enterprise Air India has had to cancel flights after a pilot strike and has previously been forced to request a US$5.8 billion government bailout. Kingfisher Airlines, formerly the second largest carrier in India, carries US$1.4 billion of debt and is flying only a quarter of its fleet.
These woes are attributed largely to the high cost of crude oil, low fares in response to market competition and the overall slowdown in the Indian and international economies. State taxes of up to 30 percent raise the price of fuel, often leading to running costs higher than total ticket revenues.
As a result of these difficulties, voices within and outside of government are calling for a full shake-up of the industry. Most notably, Director General of the International Air Transport Association (IATA), Tony Tyler, has argued that the sector needs direct government aid for its full revitalization.
“The Indian airline sector is in a state of financial crisis and needs to be helped by supportive government policies if it has to contribute towards the economic development of the country as a whole,” he has said.
He has also highlighted the need to proceed on proposals to widen foreign access to the industry. The Indian government has discussed proposals to allow foreign airlines to hold 49 percent ownership stakes in Indian airlines for many years.
In mid-July, Civil Aviation Minister Ajit Singh confirmed that the government is still seeking to build consensus on this issue. The Economic Times reports that Singh has had to deal with protectionist sentiments within parliament, including with Trinamool Congress chief Mamata Banerjee.
Foreign investors can already own up to 49 percent of Indian airlines, but they must not be in the airline business abroad. Under the government proposals, foreign airlines will be allowed to bring their expertise to the Indian industry.
Naresh Goyal, chairman of Jet Airways, has lent his support to allowing the entry of FDI into the industry. The Centre for Asia Pacific Aviation (CAPA), a consulting group, has also recommended swift resolution of this legislative change in a report commissioned by the Ministry of Civil Aviation.
No major progress is being reported, but media reports of ongoing, behind-the-scenes lobbying suggest that the issue is certainly not forgotten in New Delhi.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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