One corner of India?s private airline sector seems in favour of foreign airline entry. Another corner, perhaps more confident of its medium-term future and better able to raise financing, may still be opposed to it. Given that private airlines and the civil aviation ministry share a more-than-healthy close relationship, the official view on this becomes extra important. Complicating this is the presence of state carriers. They are very apprehensive of foreign airlines and usually have the entire bureaucracy behind them. It is this private-public partnership that had scuttled the Tata-Singapore Airlines venture in the early days of civil aviation reform. A lot has changed since those days?from boom to near-bust, in fact. We have consistently argued that aviation is a sunrise sector in India that can?t be allowed to crash land. Cuts in aviation fuel price and taxes have helped. State carriers are getting sovereign guarantees for bank financing, reportedly. Private airlines must be told that once they face level-playing fields on fuel price and tax, they should consider divesting equity as a means to raise cash. Asking for help without doing this is just not on.
As irrational is expecting a big transformation in Indian civil aviation without the entry of foreign airlines. Domestic entreprenurial ability is at its limits. One round of failures was seen earlier. This time, one or two more airlines may become unviable. But the market is potentially vast and, therefore, the larger the number of players with deeper pockets, the better. The silly FDI rule?49% of FDI allowed in commercial carriers, provided the investor is not an airline?must change. It is not generally appreciated that the same rules allow 100% foreign aviation company investment in helicopter/seaplane services. Why this remarkable liberalism in helicopter and seaplane policy? Because powerful private/public incumbents are not present in these sectors. Two arguments are always given against the entry of foreign airlines. First, other countries, including in the West, don?t allow it. The answer to that is, bad policies of other countries are not worth thinking of. Our policy must be geared to our needs. The second argument is security. To the extent this is meaningful, an independent civil aviation regulator should be able to judge tricky cases, if any. It?s logical to open the door and shut it for one troublesome entrant than keep it closed, assuming all entrants will bring trouble. Any change in policy is unlikely, however, given the powerful lobbies in and around the government.