The high flying days of the aviation industry around the world is numbered. First, there was the high price of oil in 2008 followed by the global recession. Finding no other options, Indian government has decided to allow foreign investors to buy up stakes in its domestic airlines; a thing that has never been allowed by the government for decades. On the contrary, Indian domestic could buy 49% stakes in foreign carriers which includes portfolio and direct investments.
Praful Patel, Civil Aviation Minister, told reporters in Mumbai that government is studying a proposal to allow foreign airlines to buy stakes in domestic airlines. It would help to better the conditions of the domestic airlines that are now going through severe financial crisis.
In the pre-recession period, Indian aviation sector, like other industries of the country, was observing a better year-to-year growth but things took an ugly turn when price of oil sky-rocketed in the middle of 2008. Many domestic airlines cut down their flight routes, decreased stuffs and changed business policy of collecting passengers through travel agencies to save money. Now, they are in a deeper crisis. The world wide economic slowdown has changed everything. Indian aviation companies are now finding it difficult to raise money. Analysts forecast that the industry would incur a loss of Rs. 80 billion in the current fiscal year ending in March. Mr. Patel said that, at such critical situation, injecting more cash directly into the industry would not change anything. Government will bring necessary changes in business policies to give the industry some breathing space.
If this law is passed, then foreign aviation companies like Singapore Airlines Ltd., Virgin Atlantic Airways Ltd. and others would be able to invest in the Indian aviation sector.
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(This entry was first published in February 2009. Because of a technical problem, the entry had to be deleted and I am reposting again now.)