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Gulf carriers eye investing in Indian airlines

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Rapidly-expanding Gulf airlines could invest in Indian carriers such as SpiceJet and Kingfisher Airlines, as the government in Delhi considers easing restrictions on stake-building by foreigners in lo

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Rapidly-expanding Gulf airlines could invest in Indian carriers such as SpiceJet and Kingfisher Airlines, as the government in Delhi considers easing restrictions on stake-building by foreigners in local airlines.

SpiceJet, the Mumbai-listed low budget carrier which began operations in 2005, has had talks with Middle East and other foreign airlines about purchasing a stake in the low-cost carrier, according to its chief executive Neil Mills.

“We’ve had [talks with] carriers from the Middle East and South East Asia,” he told Zawya Dow Jones on the sidelines of an aviation summit in Abu Dhabi, declining to name the airlines. “We’re talking but because the (foreign investment) regulation hasn’t gone through yet you can only talk about it on speculative basis.”

The Indian government is currently studying a proposal to let foreign airlines buy up to a 49% stake in local carriers, potentially providing much needed funds to a debt-laden industry hit hard by high fuel prices and other costs.

India’s Civil Aviation Minister Ajit Singh recently said the federal cabinet may discuss “very soon” the proposal to change current foreign direct investment rules, although he didn’t give a timeframe.

Dubai’s Emirates Airline, Abu Dhabi-owned Etihad Airways and Qatar Airways are three of the fastest growing carriers in the world, each with ambitions to create global aviation hubs.
Debt-laden Indian carrier Kingfisher Airlines is a likely acquisition target for Gulf airlines, analysts say. If regulatory barriers are lifted, Middle East carriers would likely eye a maximum 49% stake to give them the strongest possible foothold in a lucrative Indian market, they say.

Kapil Kaul, chief executive of the Centre for Asia Pacific Aviation (CAPA) for South Asia thinks that Kingfisher’s huge domestic network would make it a “prime candidate” to offload a stake to Gulf airlines.

“I think all the 3 players – Emirates, Etihad, Qatar – will have interest in picking up equity stakes of up to 49% in Indian carriers,” Kaul said.

A spokesman for Kingfisher said the company wasn’t currently in talks with Gulf carriers but if the FDI regulation was relaxed, it would appoint a bank to advise on a stake sale. “Aviation is a capital intensive business and needs strategic capital,” the spokesman said.

Last month Qatar Airways chief executive Akbar al-Baker declined to comment on whether he was in talks with Kingfisher though he said he was “excited” about the aviation market in India.

Dubai’s Emirates Airline also views India as a key market and is keen to invest there.

Sheikh Ahmed bin Saeed al-Maktoum, chairman and chief executive of Emirates Airline & Group said in India last month he was open to investing in the South East Asian country, a crucial market for the Dubai-based carrier which flies to 10 destinations there.

“We consider this market as very important, not only for connecting to the US… but also for the point to point business between Dubai and India,” said Thierry Antinori, Emirates’ executive vice president for worldwide passenger sales.

Asked whether Etihad would invest in Indian airlines, a spokesman for the airline said: “We never comment on speculation of this nature, except to say that we talk regularly and frequently to many airlines and a range of other businesses from all over the world about issues and opportunities.”

Over the past few years, wealthy Gulf airlines have emerged as key contenders to invest in India-a market they serve heavily and are keen to fly to even more, analysts say.

India is one of the most heavily regulated aviation markets in the world, where high taxes and lack of foreign investment has stunted growth.

Minority stakes in Indian airlines such as SpiceJet and Kingfisher would funnel a burgeoning pool of India middle class travelers on Gulf carriers’ long haul networks via Dubai, Doha and Abu Dhabi.

Around 25% of passengers Emirates flies out of India go directly to Dubai, while around 10% of Qatar Airways and Etihad traffic fly to their hubs in Doha and Abu Dhabi, Kaul said, citing CAPA data.

“The Indian market provides a very critical feed to their global network and given their massive expansion, it is essential for all the three Middle East carriers to further strengthen their positions in India,” said Kaul.

Indian law currently allows up to 49% FDI in airlines, including by companies and individuals but overseas carriers are barred from investing in the sector.

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