Survey for foreign airlines buying stake in local carriers

The Economic Survey 2011-12 on Thursday made a case for allowing foreign airlines to invest in domestic carriers, a suggestion that will enable the ailing sector to access overseas capital and expertise.

"FDI policy currently does not permit foreign airlines investment that denies them access to potential sources of capital and expertise," said the survey presented by Finance Minister Pranab Mukherjee said in Parliament.

According to the present policy, foreign direct investment (FDI) up to 49 per cent is allowed in the aviation sector, but foreign airlines are not permitted to invest in Indian carriers.

It further applauded the government's decision to allow airlines import aviation turbine fuel (ATF) directly, as it would improve operational economies.

However, it added, "In the long run, airlines will need to improve their internal accruals, access to domestic and international capital, and their overall operations to remain vibrant and viable".

"Air carriers have been affected by the high ATF prices because of high incidence of taxes. The recent decision to allow them import of ATF will hopefully improve their operational economies," it said.

Cash-strapped domestic carriers, particularly Kingfisher, have been demanding permission for direct imports.

Listing the major challenges for the sector, which is facing turbulent times, the Survey said airlines were bogged down by high and growing debt burden.

"The airline industry in India suffers from huge debt burden -- close to $20 billion (estimated for 2011-12). Half of this debt is aircraft related and the rest is for working capital loans payments to airport operators and fuel expenses," it said.

Besides, the survey said, that even though air traffic has been growing, averaging 18.5 per cent in the last seven years, financial performance of airlines has not kept in sync, and it necessitates more injection of money into the sector.

"High growth rates for the past few years in aviation, particularly in the passenger segment, are not getting reflected in the financial health of the carriers. To manage the next growth phase safely and efficiently, significant and continuous investment will be required," it said.

Domestic passenger traffic handled at Indian airports grew by 19.4 per cent during January-November, 2011 to reach 108.1 million. Further, international passenger traffic and at Indian airports grew by 7.7 per cent during January-November 2011.

Union Budget 2012-13: Complete coverage