FDI cap in select aviation segments to be relaxed

Foreign direct investment (FDI) in certain specific sectors of the aviation industry including maintenance, repair and overhaul (MRO) facilities, pilot training schools and cargo operations is in for a revamp, with the government planning to increase the FDI limit in these sectors from the current 49% soon. This was indicated by secretary in ministry of civil aviation, Ashok Chawla, at the FE Round Table Conference on Aviation, titled 'Aviation Skies Ahead', held in Mumbai on Tuesday.

However, FDI limits in the passenger segment would remain the same, till the time the industry is mature enough, Chawla added. "The country is not short of capital today," Chawla said, referring to the capitalization needs of the aviation industry. "But the policies are not going to remain the same." On the issue of relaxing the five-year norm for domestic carriers to fly overseas, Chawla said that a new policy will be formulated in the next three months. The Round Table discussed in detail issues on the cost front, at a time when carriers are straddled with high ATF prices, shortage of trained manpower and poor infrastructure. "The industry has been coping up with rising costs, which have become very difficult to manage," said CMD of Air India V Thulasidas. ATF prices, currently reigning at $2.60, in addition to wage costs, high catering and hotel costs, are a burden, he added. Jet Airways executive director Saroj Datta, while agreeing that fuel costs was an issue for both public and private carriers to worry about, also said that the "establishment still considered air travel as a luxury". Agreeing to this, Centre for Asia Pacific Aviation's (CAPA) Kapil Kaul said that airline profitability was central to the business, and the industry needs a special treatment on the hands of the government. He also said that the country needs a structured policy for the development of greenfield airports and other infrastructure. Stating that the aviation market was growing at 40%, managing director of GoAir, Jeh Wadia, pointed out that high taxes, including a 27% sales tax, was a spoilsport. The government should at least fix the sales tax on ATF to mitigate the cost pressure, he said, adding that ATF should be brought under the declared goods category.

Capitalising would be an issue if the industry continues to bleed, said Rashesh Shah, MD and CEO, Edelweiss. With the consolidation that has taken place in the industry, 60-65% of the market now remains with the three big players. Kapil Arora, partner, Ernst & Young, on the other hand, said that capitalization would not be an issue for companies with strong fleet and asset management in place. Shivnath Thukral, managing editor, NDTV Profit and Sourav Majumdar, deputy executive editor, Financial Express were moderators for the event.