Corporate governance of India is all set to privatise AIR India.
Free market economy is injected with reform cromin again and again. But revival scenario does not satisfy corporate greed as yet.Corporate governance of India is all set to privatise AIR India.
Palash Biswas
Mobile: 919903717833
Skype ID: palash.biswas44
Email: palashbiswaskl@gmail.com
Free market economy is injected with reform cromin again and again. But revival scenario does not satisfy corporate greed as yet.Corporate governance of India is all set to privatise AIR India. Backed by robust economic growth, its huge geographical expanses and a population that tops well over a billion both at home and abroad, the sky should be the limit for India’s civil aviation sector.This could not be further from reality, with many of the country’s carriers buckling under the weight of excessive debt, high taxes and an indigenous population of whom less than one percent regularly use air travel.Aviation sector is opened for foreign capital only recently.Now the policy is also finalised. Only an executive order after cabinet green signal is waited.Meanwhile, overseas investors pumped in more than Rs 19,000 crore (USD 3.5 billion) in the Indian stock market in September, the highest monthly inflow in seven months, on account of bold economic reform initiatives taken by the government. Thus, FII investment in the country's equity market has reached Rs 82,331 crore (USD 15.85 billion) so far this year, and Rs 25,140 crore (USD 5 billion) in the debt market during the same period. Reserve Bank banks on consumer market to boost the economy as Reserve Bank Deputy Governor Anand Sinha said today,India can recover from global economic slowdown faster than China as the economy is driven by domestic consumption, but the country needs to "get its act together" for this to happen!Sinha is in Beijing to take part in the Regional Policy Forum on Financial Stability and Macro-prudential Supervision.
On the other hand,an uptrend in the stock market and various reform measures being undertaken by the government and regulator Sebi may help revive the initial public offering (IPO) segment in the coming months, experts believe.While the number of the companies having filed IPO papers with Sebi (Securities and Exchange Board of India) is not very high, a number of entities have already got the go-ahead from the market regulator but have been holding on their plans in the absence of conducive market conditions. In the quarter ending today, at least four companies, including Bharti Infratel, G B Tools and Forgings Ltd, Just Dial Ltd and V-Mart Ltd have filed their respective Draft Red Herring Prospectus (DRHP) to raise funds through IPOs.
For yet another stimulus,Parthasarathi Shome panel, looking into the taxation issues relating to GAAR (General Anti-Avoidance Rules), is likely to submit its final report to Finance Minister P Chidambaram on Monday.It would allow tax evation and enable partially deactivated black money cycle!
Builder mafia promoter raj has to be further strengthen asThe Finance Ministry is considering a proposal to relax funding norms for the realty sector so that good housing projects are not starved of funds.
"The Ministry is actively looking at options ... how to ramp up demand in the housing sector. We are studying all the possible impediments," an official source said.
"We are of the view that good project will be funded," the source said.
Banks are cautious in lending to the real estate developers because there is a huge mismatch in price and demand.
While dismissing general perception of holding on to inventories, real estate developers have been expressing concern that many projects are stalled due to lack of funds.
Loss-making national carrier Air India should be partly privatised as private investors will focus on maximising profit and in turn solve the carrier's operational issues, a study 'Competitive Framework of Civil Aviation Sector' of the Indian Institute of Corporate Affairs (IICA), commissioned by the Corporate Affairs Ministry has said.
"Bringing in private players and capital to operate India's national carrier will help address some of the airline's operational issues, while freeing government funds for other purposes".
"Partially privatising Air India would create incentives for the carrier to compete with other airlines, since Air India's private investors would seek to maximise return on their investment," said the Study Report
However, Civil Aviation Minister Ajit Singh recently ruled out any move to privatise Air India as government was pumping in Rs 30,000 for its restructuring.
Airlines flying to Indian airports could face an auction for peak-time landing slots in a shake-up of aviation policy under the government's economic reform drive.
Authorities are also in talks with suppliers to cut taxes on aircraft fuel, a move that would help local carriers which posted losses of $2.5 billion last year as they grappled with high airport charges and below-cost fares.
Debt-strapped Kingfisher Airlines, once India's No 2 airline, is operating only a quarter of its fleet while national carrier Air India is reliant on a $5.8 billion taxpayer bailout to stay in the air.
Air India, the nation’s state-owned flag carrier was earlier this year granted a $5.8bn bailout from the government to shore up its leaky finances, not to mention having to contend with pilot strikes and a botched attempt to join Star Alliance.
Things are not much rosier at Kingfisher Airlines, which had the second largest market share in India until the financial crisis. In early 2012, the operator was forced to scrap all of its international routes as well as suffering the indignity of having 75 percent of its aircraft repossessed by creditors, while its debts estimated at $1.3bn led Kingfisher to be suspended from the International Air Travel Association.
Earlier this month, India announced major reforms designed to revive economic growth and avoid a ratings downgrade.
"The policies that are now in place were made several years back. Things have changed now. We need to adapt to the changing times," civil aviation minister Ajit Singh told reporters on Friday.
He gave few details but analysts pointed out that Indian airport charges are already very high, with New Delhi the world's costliest, according to the International Air Transport Association.
Singh also said he would "nudge" local carriers to operate more flights to smaller towns but did not elaborate.
Analysts said the current system of allocating landing and takeoff slots on an ad hoc basis has become a major headache with the increase in traffic in Asia's third-largest economy and the emergence of low-cost carriers.
The new developments come just weeks after India, which has an aviation market a fifth the size of China's despite comparable populations, relaxed rules to allow foreign airlines to own up to 49 per cent in Indian carriers.
Singh said Maharashtra, home to India's financial hub Mumbai, is willing to cut taxes on jet fuel.
Aviation fuel, which makes up about half the cost for an airline, is about 50-60 per cent costlier in India, mostly due to state taxes.
Singh also said ailing Kingfisher Airlines, owned by billionaire liquor baron Vijay Mallya, could lose its licence to fly if it fails to operate at least five aircraft.
Lenders to Kingfisher held inconclusive talks about the beleaguered carrier's turnaround plan on Thursday and will meet again next month, a source told Reuters.
Mallya told shareholders on Wednesday he was in talks with foreign carriers for investments, reiterating comments he has made over the past year without any concrete developments.
The very announcement of the government’s decision to allow foreign airlines to invest in domestic carriers has sent the stocks of Kingfisher Airlines and SpiceJet soaring, the exception being Jet Airways that has seen its stocks decline.
The biggest gainer among the three listed Indian carriers is Kingfisher Airlines, whose stocks went up by 60.88 per cent from Rs 10.02 on September 13, to Rs 16.12 on September 28.
During the same period, the value of SpiceJet stocks rose by 12.25 per cent to Rs 37.10. Jet Airways’ stock fell 4.35 per cent during the period and closed at Rs 345.55 on Friday.
The government’s relaxation of the FDI policy in aviation is seen as a major boost for the aviation sector.
Kingfisher, SpiceJet and GoAir are likely to get foreign partners, which will help them financially and give access to the large network and operational efficiencies of the international carriers.
Jet Airways and IndiGo have not been in favour of the policy relaxation.
Analysts say that the rise in stock value has been largely fuelled by the government’s announcement.
“Jet has lost its stock value in recent times, as it has not shown interest in getting a foreign partner whereas the other two airlines have shown interest in getting foreign partners. The stock values are up on sentiments, as the finances of the aviation companies are still strained,” said Mahantesh Sabard, senior analyst at financial services firm Fortune Equity India.
Sabard further said that the operating cost during the second quarter of the current fiscal are higher and is likely to impact finances of the airlines.
IICA had nominated Nathan India as consultants to carry out an analysis on competition-related issues in the civil aviation sector.
The report pointed out that the Air Corporation Act 1953 provided a legislative framework within which the Government could provide funds for capital expenditures as well as potential bailout funds for the national carrier.
However, "this regulation gives Air India an unfair competitive advantage, by creating a framework through which it may apply for government financial assistance. The Act lacks competitive neutrality with regards to airlines in terms of access to government funds for capital expenditures and potential bailout," it said. The report further said the regulation which prescribes that operational plans submitted by the national carrier would be considered before allocation of traffic rights to other eligible applicants, was deterrent to competition in the market.
"This rule lacks competitive neutrality in assigning traffic rights. In order to increase its customer base, Air India will take the best available routes, thus maintaining an unfair competitive advantage over other eligible Indian international carriers," it said.
The report recommended that aviation regulator DGCA should consider abandoning preferential international route assignments to the national carrier, which would allow private carriers to compete with Air India.
Taking away Air India's right to priority route assignments, it said, would also help other Indian international carriers expand service to additional global destinations, leading to expansion in the range of choices for consumers.
A collective gasp of relief will have been let out then on 14 September, when India’s government cleared a change in policy that would allow foreign airlines to purchase shareholdings of up to 49 percent in domestic carriers for the first time in fifteen years. The decision should clear the runway for overseas parties to provide a much-needed capital injection in the industry. Given the troubles the sector is facing, though, it begs the question: India’s civil aviation industry may be up for sale, but who is buying?
Airlines in the Gulf, some of which are flush with government petrodollars and already serving a large Indian expat population, are interested, it would seem.
Neil Mills, CEO of low-cost airline SpiceJet told Arabian Business days before the foreign direct investment ruling went through that the Chennai-based carrier had held “preliminary discussions” with at least one carrier based in the Gulf.
“There have been preliminary discussions to check in principle whether there is interest on both sides and the confirmation there would be ‘yes there is’,” Mills said. He declined to disclose which airline or airlines he was referring to, although a senior industry source later told Arabian Business that Qatar Airways was one of them.
The negotiations, Mills explained, had largely been academic up to that point. “[Talks have] been on a preliminary basis, because they’ve quite rightly said ‘what’s the point in investing money in due diligence if the rule to enable [an investment] doesn’t even exist’,” he added.
Incredible India and key aviation partners are among over 100 international air transport organisations in Abu Dhabi this weekend, discussing the latest developments in the global aviation sector.
Spicejet, Indigo, Air India Express, Kingfisher, Jet Airways, the Airports Authority of India, Goa Airport, and Kolkatta International Airport are all in attendance, showcasing their latest products and developments at the 18th World Routes Development Forum.
Senior executives from these companies are rubbing shoulders with government ministers and aerospace leaders in an unparalleled environment which facilitates networking and learning this weekend.
Strengthened by the array of co-located activities taking place as part of the World Route Development Forum, the summit provides an exclusive arena which allows everyone to meet the people who are creating the future of air transport.
The future Indian aviation outlook certainly looks rosy for India.
According to Airbus’ latest market forecast, Indian carriers will require 1,043 new aircraft valued at US$145 billion between now and 2030 to satisfy surging annual demand.
India’s market for new aircraft makes it the world’s fourth largest in both number of aircraft and value.
Indian annual passenger traffic growth rates of 7.2 per cent are well above the regional Asia Pacific average growth rate of 5.9 per cent and the world average 4.8 per cent.
Of the requirement for 1,020 new passenger aircraft, some 860 will be for growth and 160 to replace the eldest aircraft in the existing fleet of 327.
By 2030, this means that India’s passenger fleet will more than triple to some 1,180 aircraft.
The new passenger aircraft include 646 single aisles like the A320 and A320neo Family, 308 twin aisles like the A350 XWB and A330, and 66 very large aircraft such as the A380.
Growing urbanisation and population concentrations combined with a growing middle class and dynamic economic growth are driving demand and this trend is expected to continue.
Despite near term challenges, the Indian economy is forecast to continue expanding, helping India’s growth in domestic air travel to reach even higher growth rates of nearly ten per cent annually, making it one of the fastest growing aviation markets anywhere in the world.
“By 2030, India’s economy is forecast to be the fourth largest in the world creating exceptional potential for growth in the aviation sector.
“Through our Indian industrial partnerships we are proud to boast that every A320 today is partly made in India,” said Kiran Rao, president of Airbus India.
Among some of the latest news from India, Air India became the fifth airline in the world to take delivery of the Boeing Dreamliner 787.
“The 787 will allow Air India to open new routes in a dynamic marketplace and provide the best in-flight experience for our passengers,” said Rohit Nandan, Air India chairman.
Air India follows in the footsteps of All Nippon Airways, Japan Airlines, LAN Airlines and Ethiopia Airlines.
This delivery is the first of 27 Dreamliners for Air India.
The airplane is equipped with 18 business class seats and 238 economy class seats.
The 787 has the range and capability to allow Air India to deploy the Dreamliner on many routes including the Middle East, Europe, Asia and Australia.
“We are pleased to celebrate another historic moment in our nearly seven-decade long relationship,” said Dinesh Keskar, senior vice president of Asia Pacific and India Sales for Boeing Commercial Airplanes.
“I am sure Air India and their customers will be thrilled to experience the revolutionary features on the 787, an airplane that will be the key focus of the airline’s turnaround plan.”
This is the latest coup for the Indian Government Tourist Office, which was named World’s Leading Tourist Board as well as being named World’s Leading Destination by the World Travel Awards in 2011.
Drawing on the success already achieved by the destination and its projected growth, later this the World Travel Awards Grand Final will be staged in Delhi later this year, drawing the heads of the global travel and tourism industry.
Speaking to PTI, Reserve Bank Deputy Governor Anand Sinha also said "confidence issues like the general pessimism and not-so-good-feel factor also affected the economy".
"Both economies (India and China) are affected by the global economic slowdown. But India being a domestic consumption driven economy, could recover faster," he said.
"But for that we have to get our act together. Being dependent on domestic economy, we would be less affected by export sector performance. So, that could be our strength. But we have to get our act together and whatever weaknesses we have to get around them," he said responding to a question.
When asked what should be done by India to arrest the slide in growth, he said, "We have to get hold of inflation. If we get hold of it, growth will have better prospect. Once growth takes off things would be better. Retail inflation in India is in double digits at 10.03 per cent. RBI had been repeatedly saying that focus of its monetary policy is on controlling inflation.
"We must realise that even if we put our domestic situation on sound footing, what happens in the rest of the world, we cannot be totally immune to that. So you will not have the same growth rate as we would have had if the world economy is in good shape."
Sinha also said "not so good feel factor", besides the global economic slowdown, for the current domestic situation.
"One reason is global economic slowdown. That has affected us is the trade channel. We are not export dependent but exports suffered due to global economic crisis. Apart from trade issues, confidence issues like the general pessimism and not so good feel factor also affected the economy," he said, adding that sentiments are very important when it comes to taking business decision.
Sinha also spoke about the negative influence of financial markets on India.
"We are globalised to some extent. There also we are affected. It affects the equity markets and foreign exchange rate," he said.
However, according to Sinha, the essential problem in India is inflation.
"We are a supply constrained economy. Because of that inflation has risen, essentially the food inflation. That is a supply side issue," he said.
The other factor was that India has been affected by loose monitory policy being followed by various countries to tide over the crisis which in turn led to increase in commodity prices, he said.
Also rising oil prices affected the economy. India is heavily dependent on oil which also adds to inflation, he said adding that the prices keep going and up down.
"As a result we have to tighten interest rates," he said.
On growth rates he said, "I would only say the growth has to go upwards. How much we can go I cannot say. All policies have been geared to go up," he said.
India registered 5.5 per cent economic growth rate in April-June period this financial year-- the worst first quarter performance in a decade. The expansion was mainly pulled down by poor show by the manufacturing sector.
About RBI cutting down the interest rates he said, "RBI is mindful of inflation growth in excess. At the same time RBI first task is to keep inflation down. What will happen in the next few weeks is not possible for me to say. Intense review is carried before any decision is taken so I won’t be able to tell you".
RBI's half yearly monetary policy review is expected on October 30.
On the success of FDI in retail he said, it all depends on how much India gets in the end.
"On the positive side it improved sentiment as was shown in the market. Rupee has rebounded to a considerable extent. There is certainly promise," he said.
At the conference on Mitigating Procyclicality in Banking and Bank Regulation, Sinha also spoke of how Indian banks managed to tide over the 2008 economic crisis by following policy of Capital Adequacy Ratio in certain sectors, which came in handy during the crunch time.
He said there is also general discussion about the new international banking regulations being contemplated to ward off future crisis.
"There are apprehensions in India an all the countries, when the capital requirement becomes much higher what happens to growth."
In September, Foreign Institutional Investors (FIIs) were gross buyers of shares worth Rs 66,752 crore, while they sold equities amounting to Rs 47,491 crore translating into a net inflow of Rs 19,261 crore (USD 3.56 billion), according to the data available with the market regulator Sebi.
This was the highest net investment by FIIs in stocks since February, when they had infused Rs 25,212 crore. Besides, FIIs had infused Rs 10,804 crore in August and Rs 10,273 crore in July.
Market experts said the month of September has seen extraordinary amount of FII flows on several tough economic decisions including opening up FDI in retail and aviation sectors, capping up of cooking gas subsidy and hike diesel prices, taken by the government.
"FII inflows was driven by policy reforms announced by the government and I think they will continue to invest in the domestic equity market in next six to eight months as well on further reforms in sectors like insurance and pharma," Wellindia Vice President Research Vivek Negi said.
Another market analyst, Destimoney Securities MD and CEO Sudip Bandhopadhyay said,"The overall sentiment with regards to growth has enhanced the FII flows. Besides, foreign investors have also got support from easing of monetary policy by the US Federal Reserve."
Apart from equity, FIIs also invested Rs 622 crore in the debt market in the current month.
The strong FII inflows have pushed the BSE's benchmark Sensex by 1,382 points or eight per cent to settle at 18,762.74 points on Friday.
As on September 28, the number of registered FIIs in the country stood at 1,753 and total number of sub-accounts were 6,325 during the same period.
Market analysts expect the trend to pick up in the coming weeks, as the government and Sebi have expressed their intention to revive equity culture in the country and help channelise the household income into stocks, mutual funds and insurance sectors, rather than in idle assets like gold.
A revival in the secondary market trends will also help the firms shift their focus to IPOs for their fund-raising plans. Most of the companies plan to utilise their proposed
IPO proceeds for capacity expansion as well as working capital requirements.
"The current market conditions has turned favourable for companies planning to come out with their IPOs mainly on account of various initiatives taken by the government," Sudip Bandhopadhyay MD and CEO at Destimoney Securities said.
"Besides, festive season is also approaching so I expect many companies that withdrew their IPO and companies that have not hit the capital market despite getting Sebi's approval on subdued market conditions would definitely plan to go ahead with their public issues," he said.
In the last three months, broader market Sensex gained over 1,300 points or more than seven per cent as Foreign Institutional Investors (FIIs) invested a hefty sum of a
little over Rs 40,000 crore on the back of a slew of reforms initiated by the government.
According to market analysts, several tough economic decisions, including to open up FDI in retail and aviation sectors, capping up of cooking gas subsidy and hike diesel prices, taken by the government recently have boosted the secondary market, which would eventually help companies to launch their IPOs.
"Any company which was planning for the IPO in the last two-three years can hit the market as it is any excellent time for the IPO," Wellindia President (Research) Vivek Negi said.
He further said that the success of any IPO depends on the sound fundamentals and pricing issue.
Sebi has already floated a discussion paper on 'mandatory safety net mechanism' in IPOs, a move that would help in fair-pricing of the public offers and would provide capital guarantee on a certain portion of investments.
Besides, the regulator has also announced various other IPO market reforms, steps for enhanced distribution network, incentives for brokers, bidding through electronic IPO
platforms and allotment of a minimum lot of shares.
These steps are likely to help in creating a greater appetite for IPOs in the near future, provided the market conditions remain conducive and there are no adverse global
developments that might affect the domestic investor sentiments.
Earlier this month, Bharti Infratel, tower unit of telecom giant Bharti Airtel, had filed papers for an IPO with Sebi and is expected to raise up to USD 1 billion (about Rs 5,500 crore).
Rashtriya Ispat Nigam Ltd (RINL), which had deferred its IPO plans twice since the filing of the draft documents in May due to volatile market conditions, is most likely to hit the capital market in the middle of the next month.
The RINL's IPO, which would mark the kick-off the government's disinvestment process for the current fiscal. The government is targeting to raise Rs 30,000 crore through share sale plan during the period.
Besides RINL, four other firms -- Goodwill Hospital and Research Centre, Fast Train Cargo, Ace Tours Worldwide and C Mahendra Infojewels -- had filed their respective IPO documents during April-May period with the Sebi, but none of them hit the capital on lacklustre market conditions.
Besides, two companies packaging materials maker Plastene India and auto parts manufacturer Samvardhana Motherson Finance - shelved their IPO plans in May citing poor response from investors amid weak broader market.
Goodwill Hospital had also pulled out its IPO in January, but once again filed draft papers in May to mop up Rs 98 crore through share sale. The IPO was shelved after the issue failed to get subscription of even one per cent of its shares on sale. It was the first company to withdraw its IPO in 2012.
In addition, around 20 companies including Reid & Taylor, Micromax Informatics, Embassy Property, Joyalukkas and Tata Autocomp System had called off their IPO plans totalling nearly Rs 9,000 crore in this year, according to SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla.
Palash Biswas
Mobile: 919903717833
Skype ID: palash.biswas44
Email: palashbiswaskl@gmail.com
Free market economy is injected with reform cromin again and again. But revival scenario does not satisfy corporate greed as yet.Corporate governance of India is all set to privatise AIR India. Backed by robust economic growth, its huge geographical expanses and a population that tops well over a billion both at home and abroad, the sky should be the limit for India’s civil aviation sector.This could not be further from reality, with many of the country’s carriers buckling under the weight of excessive debt, high taxes and an indigenous population of whom less than one percent regularly use air travel.Aviation sector is opened for foreign capital only recently.Now the policy is also finalised. Only an executive order after cabinet green signal is waited.Meanwhile, overseas investors pumped in more than Rs 19,000 crore (USD 3.5 billion) in the Indian stock market in September, the highest monthly inflow in seven months, on account of bold economic reform initiatives taken by the government. Thus, FII investment in the country's equity market has reached Rs 82,331 crore (USD 15.85 billion) so far this year, and Rs 25,140 crore (USD 5 billion) in the debt market during the same period. Reserve Bank banks on consumer market to boost the economy as Reserve Bank Deputy Governor Anand Sinha said today,India can recover from global economic slowdown faster than China as the economy is driven by domestic consumption, but the country needs to "get its act together" for this to happen!Sinha is in Beijing to take part in the Regional Policy Forum on Financial Stability and Macro-prudential Supervision.
On the other hand,an uptrend in the stock market and various reform measures being undertaken by the government and regulator Sebi may help revive the initial public offering (IPO) segment in the coming months, experts believe.While the number of the companies having filed IPO papers with Sebi (Securities and Exchange Board of India) is not very high, a number of entities have already got the go-ahead from the market regulator but have been holding on their plans in the absence of conducive market conditions. In the quarter ending today, at least four companies, including Bharti Infratel, G B Tools and Forgings Ltd, Just Dial Ltd and V-Mart Ltd have filed their respective Draft Red Herring Prospectus (DRHP) to raise funds through IPOs.
For yet another stimulus,Parthasarathi Shome panel, looking into the taxation issues relating to GAAR (General Anti-Avoidance Rules), is likely to submit its final report to Finance Minister P Chidambaram on Monday.It would allow tax evation and enable partially deactivated black money cycle!
Builder mafia promoter raj has to be further strengthen asThe Finance Ministry is considering a proposal to relax funding norms for the realty sector so that good housing projects are not starved of funds.
"The Ministry is actively looking at options ... how to ramp up demand in the housing sector. We are studying all the possible impediments," an official source said.
"We are of the view that good project will be funded," the source said.
Banks are cautious in lending to the real estate developers because there is a huge mismatch in price and demand.
While dismissing general perception of holding on to inventories, real estate developers have been expressing concern that many projects are stalled due to lack of funds.
Loss-making national carrier Air India should be partly privatised as private investors will focus on maximising profit and in turn solve the carrier's operational issues, a study 'Competitive Framework of Civil Aviation Sector' of the Indian Institute of Corporate Affairs (IICA), commissioned by the Corporate Affairs Ministry has said.
"Bringing in private players and capital to operate India's national carrier will help address some of the airline's operational issues, while freeing government funds for other purposes".
"Partially privatising Air India would create incentives for the carrier to compete with other airlines, since Air India's private investors would seek to maximise return on their investment," said the Study Report
However, Civil Aviation Minister Ajit Singh recently ruled out any move to privatise Air India as government was pumping in Rs 30,000 for its restructuring.
Airlines flying to Indian airports could face an auction for peak-time landing slots in a shake-up of aviation policy under the government's economic reform drive.
Authorities are also in talks with suppliers to cut taxes on aircraft fuel, a move that would help local carriers which posted losses of $2.5 billion last year as they grappled with high airport charges and below-cost fares.
Debt-strapped Kingfisher Airlines, once India's No 2 airline, is operating only a quarter of its fleet while national carrier Air India is reliant on a $5.8 billion taxpayer bailout to stay in the air.
Air India, the nation’s state-owned flag carrier was earlier this year granted a $5.8bn bailout from the government to shore up its leaky finances, not to mention having to contend with pilot strikes and a botched attempt to join Star Alliance.
Things are not much rosier at Kingfisher Airlines, which had the second largest market share in India until the financial crisis. In early 2012, the operator was forced to scrap all of its international routes as well as suffering the indignity of having 75 percent of its aircraft repossessed by creditors, while its debts estimated at $1.3bn led Kingfisher to be suspended from the International Air Travel Association.
Earlier this month, India announced major reforms designed to revive economic growth and avoid a ratings downgrade.
"The policies that are now in place were made several years back. Things have changed now. We need to adapt to the changing times," civil aviation minister Ajit Singh told reporters on Friday.
He gave few details but analysts pointed out that Indian airport charges are already very high, with New Delhi the world's costliest, according to the International Air Transport Association.
Singh also said he would "nudge" local carriers to operate more flights to smaller towns but did not elaborate.
Analysts said the current system of allocating landing and takeoff slots on an ad hoc basis has become a major headache with the increase in traffic in Asia's third-largest economy and the emergence of low-cost carriers.
The new developments come just weeks after India, which has an aviation market a fifth the size of China's despite comparable populations, relaxed rules to allow foreign airlines to own up to 49 per cent in Indian carriers.
Singh said Maharashtra, home to India's financial hub Mumbai, is willing to cut taxes on jet fuel.
Aviation fuel, which makes up about half the cost for an airline, is about 50-60 per cent costlier in India, mostly due to state taxes.
Singh also said ailing Kingfisher Airlines, owned by billionaire liquor baron Vijay Mallya, could lose its licence to fly if it fails to operate at least five aircraft.
Lenders to Kingfisher held inconclusive talks about the beleaguered carrier's turnaround plan on Thursday and will meet again next month, a source told Reuters.
Mallya told shareholders on Wednesday he was in talks with foreign carriers for investments, reiterating comments he has made over the past year without any concrete developments.
The very announcement of the government’s decision to allow foreign airlines to invest in domestic carriers has sent the stocks of Kingfisher Airlines and SpiceJet soaring, the exception being Jet Airways that has seen its stocks decline.
The biggest gainer among the three listed Indian carriers is Kingfisher Airlines, whose stocks went up by 60.88 per cent from Rs 10.02 on September 13, to Rs 16.12 on September 28.
During the same period, the value of SpiceJet stocks rose by 12.25 per cent to Rs 37.10. Jet Airways’ stock fell 4.35 per cent during the period and closed at Rs 345.55 on Friday.
The government’s relaxation of the FDI policy in aviation is seen as a major boost for the aviation sector.
Kingfisher, SpiceJet and GoAir are likely to get foreign partners, which will help them financially and give access to the large network and operational efficiencies of the international carriers.
Jet Airways and IndiGo have not been in favour of the policy relaxation.
Analysts say that the rise in stock value has been largely fuelled by the government’s announcement.
“Jet has lost its stock value in recent times, as it has not shown interest in getting a foreign partner whereas the other two airlines have shown interest in getting foreign partners. The stock values are up on sentiments, as the finances of the aviation companies are still strained,” said Mahantesh Sabard, senior analyst at financial services firm Fortune Equity India.
Sabard further said that the operating cost during the second quarter of the current fiscal are higher and is likely to impact finances of the airlines.
IICA had nominated Nathan India as consultants to carry out an analysis on competition-related issues in the civil aviation sector.
The report pointed out that the Air Corporation Act 1953 provided a legislative framework within which the Government could provide funds for capital expenditures as well as potential bailout funds for the national carrier.
However, "this regulation gives Air India an unfair competitive advantage, by creating a framework through which it may apply for government financial assistance. The Act lacks competitive neutrality with regards to airlines in terms of access to government funds for capital expenditures and potential bailout," it said. The report further said the regulation which prescribes that operational plans submitted by the national carrier would be considered before allocation of traffic rights to other eligible applicants, was deterrent to competition in the market.
"This rule lacks competitive neutrality in assigning traffic rights. In order to increase its customer base, Air India will take the best available routes, thus maintaining an unfair competitive advantage over other eligible Indian international carriers," it said.
The report recommended that aviation regulator DGCA should consider abandoning preferential international route assignments to the national carrier, which would allow private carriers to compete with Air India.
Taking away Air India's right to priority route assignments, it said, would also help other Indian international carriers expand service to additional global destinations, leading to expansion in the range of choices for consumers.
A collective gasp of relief will have been let out then on 14 September, when India’s government cleared a change in policy that would allow foreign airlines to purchase shareholdings of up to 49 percent in domestic carriers for the first time in fifteen years. The decision should clear the runway for overseas parties to provide a much-needed capital injection in the industry. Given the troubles the sector is facing, though, it begs the question: India’s civil aviation industry may be up for sale, but who is buying?
Airlines in the Gulf, some of which are flush with government petrodollars and already serving a large Indian expat population, are interested, it would seem.
Neil Mills, CEO of low-cost airline SpiceJet told Arabian Business days before the foreign direct investment ruling went through that the Chennai-based carrier had held “preliminary discussions” with at least one carrier based in the Gulf.
“There have been preliminary discussions to check in principle whether there is interest on both sides and the confirmation there would be ‘yes there is’,” Mills said. He declined to disclose which airline or airlines he was referring to, although a senior industry source later told Arabian Business that Qatar Airways was one of them.
The negotiations, Mills explained, had largely been academic up to that point. “[Talks have] been on a preliminary basis, because they’ve quite rightly said ‘what’s the point in investing money in due diligence if the rule to enable [an investment] doesn’t even exist’,” he added.
Incredible India and key aviation partners are among over 100 international air transport organisations in Abu Dhabi this weekend, discussing the latest developments in the global aviation sector.
Spicejet, Indigo, Air India Express, Kingfisher, Jet Airways, the Airports Authority of India, Goa Airport, and Kolkatta International Airport are all in attendance, showcasing their latest products and developments at the 18th World Routes Development Forum.
Senior executives from these companies are rubbing shoulders with government ministers and aerospace leaders in an unparalleled environment which facilitates networking and learning this weekend.
Strengthened by the array of co-located activities taking place as part of the World Route Development Forum, the summit provides an exclusive arena which allows everyone to meet the people who are creating the future of air transport.
The future Indian aviation outlook certainly looks rosy for India.
According to Airbus’ latest market forecast, Indian carriers will require 1,043 new aircraft valued at US$145 billion between now and 2030 to satisfy surging annual demand.
India’s market for new aircraft makes it the world’s fourth largest in both number of aircraft and value.
Indian annual passenger traffic growth rates of 7.2 per cent are well above the regional Asia Pacific average growth rate of 5.9 per cent and the world average 4.8 per cent.
Of the requirement for 1,020 new passenger aircraft, some 860 will be for growth and 160 to replace the eldest aircraft in the existing fleet of 327.
By 2030, this means that India’s passenger fleet will more than triple to some 1,180 aircraft.
The new passenger aircraft include 646 single aisles like the A320 and A320neo Family, 308 twin aisles like the A350 XWB and A330, and 66 very large aircraft such as the A380.
Growing urbanisation and population concentrations combined with a growing middle class and dynamic economic growth are driving demand and this trend is expected to continue.
Despite near term challenges, the Indian economy is forecast to continue expanding, helping India’s growth in domestic air travel to reach even higher growth rates of nearly ten per cent annually, making it one of the fastest growing aviation markets anywhere in the world.
“By 2030, India’s economy is forecast to be the fourth largest in the world creating exceptional potential for growth in the aviation sector.
“Through our Indian industrial partnerships we are proud to boast that every A320 today is partly made in India,” said Kiran Rao, president of Airbus India.
Among some of the latest news from India, Air India became the fifth airline in the world to take delivery of the Boeing Dreamliner 787.
“The 787 will allow Air India to open new routes in a dynamic marketplace and provide the best in-flight experience for our passengers,” said Rohit Nandan, Air India chairman.
Air India follows in the footsteps of All Nippon Airways, Japan Airlines, LAN Airlines and Ethiopia Airlines.
This delivery is the first of 27 Dreamliners for Air India.
The airplane is equipped with 18 business class seats and 238 economy class seats.
The 787 has the range and capability to allow Air India to deploy the Dreamliner on many routes including the Middle East, Europe, Asia and Australia.
“We are pleased to celebrate another historic moment in our nearly seven-decade long relationship,” said Dinesh Keskar, senior vice president of Asia Pacific and India Sales for Boeing Commercial Airplanes.
“I am sure Air India and their customers will be thrilled to experience the revolutionary features on the 787, an airplane that will be the key focus of the airline’s turnaround plan.”
This is the latest coup for the Indian Government Tourist Office, which was named World’s Leading Tourist Board as well as being named World’s Leading Destination by the World Travel Awards in 2011.
Drawing on the success already achieved by the destination and its projected growth, later this the World Travel Awards Grand Final will be staged in Delhi later this year, drawing the heads of the global travel and tourism industry.
Speaking to PTI, Reserve Bank Deputy Governor Anand Sinha also said "confidence issues like the general pessimism and not-so-good-feel factor also affected the economy".
"Both economies (India and China) are affected by the global economic slowdown. But India being a domestic consumption driven economy, could recover faster," he said.
"But for that we have to get our act together. Being dependent on domestic economy, we would be less affected by export sector performance. So, that could be our strength. But we have to get our act together and whatever weaknesses we have to get around them," he said responding to a question.
When asked what should be done by India to arrest the slide in growth, he said, "We have to get hold of inflation. If we get hold of it, growth will have better prospect. Once growth takes off things would be better. Retail inflation in India is in double digits at 10.03 per cent. RBI had been repeatedly saying that focus of its monetary policy is on controlling inflation.
"We must realise that even if we put our domestic situation on sound footing, what happens in the rest of the world, we cannot be totally immune to that. So you will not have the same growth rate as we would have had if the world economy is in good shape."
Sinha also said "not so good feel factor", besides the global economic slowdown, for the current domestic situation.
"One reason is global economic slowdown. That has affected us is the trade channel. We are not export dependent but exports suffered due to global economic crisis. Apart from trade issues, confidence issues like the general pessimism and not so good feel factor also affected the economy," he said, adding that sentiments are very important when it comes to taking business decision.
Sinha also spoke about the negative influence of financial markets on India.
"We are globalised to some extent. There also we are affected. It affects the equity markets and foreign exchange rate," he said.
However, according to Sinha, the essential problem in India is inflation.
"We are a supply constrained economy. Because of that inflation has risen, essentially the food inflation. That is a supply side issue," he said.
The other factor was that India has been affected by loose monitory policy being followed by various countries to tide over the crisis which in turn led to increase in commodity prices, he said.
Also rising oil prices affected the economy. India is heavily dependent on oil which also adds to inflation, he said adding that the prices keep going and up down.
"As a result we have to tighten interest rates," he said.
On growth rates he said, "I would only say the growth has to go upwards. How much we can go I cannot say. All policies have been geared to go up," he said.
India registered 5.5 per cent economic growth rate in April-June period this financial year-- the worst first quarter performance in a decade. The expansion was mainly pulled down by poor show by the manufacturing sector.
About RBI cutting down the interest rates he said, "RBI is mindful of inflation growth in excess. At the same time RBI first task is to keep inflation down. What will happen in the next few weeks is not possible for me to say. Intense review is carried before any decision is taken so I won’t be able to tell you".
RBI's half yearly monetary policy review is expected on October 30.
On the success of FDI in retail he said, it all depends on how much India gets in the end.
"On the positive side it improved sentiment as was shown in the market. Rupee has rebounded to a considerable extent. There is certainly promise," he said.
At the conference on Mitigating Procyclicality in Banking and Bank Regulation, Sinha also spoke of how Indian banks managed to tide over the 2008 economic crisis by following policy of Capital Adequacy Ratio in certain sectors, which came in handy during the crunch time.
He said there is also general discussion about the new international banking regulations being contemplated to ward off future crisis.
"There are apprehensions in India an all the countries, when the capital requirement becomes much higher what happens to growth."
In September, Foreign Institutional Investors (FIIs) were gross buyers of shares worth Rs 66,752 crore, while they sold equities amounting to Rs 47,491 crore translating into a net inflow of Rs 19,261 crore (USD 3.56 billion), according to the data available with the market regulator Sebi.
This was the highest net investment by FIIs in stocks since February, when they had infused Rs 25,212 crore. Besides, FIIs had infused Rs 10,804 crore in August and Rs 10,273 crore in July.
Market experts said the month of September has seen extraordinary amount of FII flows on several tough economic decisions including opening up FDI in retail and aviation sectors, capping up of cooking gas subsidy and hike diesel prices, taken by the government.
"FII inflows was driven by policy reforms announced by the government and I think they will continue to invest in the domestic equity market in next six to eight months as well on further reforms in sectors like insurance and pharma," Wellindia Vice President Research Vivek Negi said.
Another market analyst, Destimoney Securities MD and CEO Sudip Bandhopadhyay said,"The overall sentiment with regards to growth has enhanced the FII flows. Besides, foreign investors have also got support from easing of monetary policy by the US Federal Reserve."
Apart from equity, FIIs also invested Rs 622 crore in the debt market in the current month.
The strong FII inflows have pushed the BSE's benchmark Sensex by 1,382 points or eight per cent to settle at 18,762.74 points on Friday.
As on September 28, the number of registered FIIs in the country stood at 1,753 and total number of sub-accounts were 6,325 during the same period.
Market analysts expect the trend to pick up in the coming weeks, as the government and Sebi have expressed their intention to revive equity culture in the country and help channelise the household income into stocks, mutual funds and insurance sectors, rather than in idle assets like gold.
A revival in the secondary market trends will also help the firms shift their focus to IPOs for their fund-raising plans. Most of the companies plan to utilise their proposed
IPO proceeds for capacity expansion as well as working capital requirements.
"The current market conditions has turned favourable for companies planning to come out with their IPOs mainly on account of various initiatives taken by the government," Sudip Bandhopadhyay MD and CEO at Destimoney Securities said.
"Besides, festive season is also approaching so I expect many companies that withdrew their IPO and companies that have not hit the capital market despite getting Sebi's approval on subdued market conditions would definitely plan to go ahead with their public issues," he said.
In the last three months, broader market Sensex gained over 1,300 points or more than seven per cent as Foreign Institutional Investors (FIIs) invested a hefty sum of a
little over Rs 40,000 crore on the back of a slew of reforms initiated by the government.
According to market analysts, several tough economic decisions, including to open up FDI in retail and aviation sectors, capping up of cooking gas subsidy and hike diesel prices, taken by the government recently have boosted the secondary market, which would eventually help companies to launch their IPOs.
"Any company which was planning for the IPO in the last two-three years can hit the market as it is any excellent time for the IPO," Wellindia President (Research) Vivek Negi said.
He further said that the success of any IPO depends on the sound fundamentals and pricing issue.
Sebi has already floated a discussion paper on 'mandatory safety net mechanism' in IPOs, a move that would help in fair-pricing of the public offers and would provide capital guarantee on a certain portion of investments.
Besides, the regulator has also announced various other IPO market reforms, steps for enhanced distribution network, incentives for brokers, bidding through electronic IPO
platforms and allotment of a minimum lot of shares.
These steps are likely to help in creating a greater appetite for IPOs in the near future, provided the market conditions remain conducive and there are no adverse global
developments that might affect the domestic investor sentiments.
Earlier this month, Bharti Infratel, tower unit of telecom giant Bharti Airtel, had filed papers for an IPO with Sebi and is expected to raise up to USD 1 billion (about Rs 5,500 crore).
Rashtriya Ispat Nigam Ltd (RINL), which had deferred its IPO plans twice since the filing of the draft documents in May due to volatile market conditions, is most likely to hit the capital market in the middle of the next month.
The RINL's IPO, which would mark the kick-off the government's disinvestment process for the current fiscal. The government is targeting to raise Rs 30,000 crore through share sale plan during the period.
Besides RINL, four other firms -- Goodwill Hospital and Research Centre, Fast Train Cargo, Ace Tours Worldwide and C Mahendra Infojewels -- had filed their respective IPO documents during April-May period with the Sebi, but none of them hit the capital on lacklustre market conditions.
Besides, two companies packaging materials maker Plastene India and auto parts manufacturer Samvardhana Motherson Finance - shelved their IPO plans in May citing poor response from investors amid weak broader market.
Goodwill Hospital had also pulled out its IPO in January, but once again filed draft papers in May to mop up Rs 98 crore through share sale. The IPO was shelved after the issue failed to get subscription of even one per cent of its shares on sale. It was the first company to withdraw its IPO in 2012.
In addition, around 20 companies including Reid & Taylor, Micromax Informatics, Embassy Property, Joyalukkas and Tata Autocomp System had called off their IPO plans totalling nearly Rs 9,000 crore in this year, according to SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla.
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