?Lot of NRIs want to invest in aviation-related projects?

Peter Harbison, executive chairman, Centre for Asia Pacific Aviation (CAPA) feels raising debt is not easy in the Indian aviation sector due to unclear foreign investment policies. He finds potential in the sector as many non-resident Indians want to invest in airport-related projects in the country. In a candid interview with FE?s Shaheen Mansuri, Harbison, a prominent commentator on Asia Pacific aviation matters, discussed issues that has gripped the aviation sector.

The aviation sector globally has seen a cycle of boom and bust, yet when we talk of India, do you find an investment potential in the sector?

Raising debt is not easy in the country due to unclear policies on foreign investment. Hence, private equity investment has become difficult. A lot of NRIs are interested to invest in aviation related projects in India. For example, CAPA is establishing an aeropark in India and we have raised $100 million for the venture that will go into operation in 18 months. The CAPA aeropark is designed to service the entire spectrum of operational and education training requirements for airlines and airports. Most importantly, India has been lagging behind by 10-20 years in terms of infrastructure development and hence there are huge projects in the pipeline, despite a downturn. This is a good time to invest in the country.

To enhance the wave of growth, how important are government policies to boost any kind of investment?

Transparency and predictability are vital to investments. There should be a better policy structure for overseeing private construction of airports. For instance, if an investor is looking at management rights for managing an airport, he will work out the cash flow and will accordingly capitalise on his investments. He will expect revenues from aeronautical charges. However, if arbitrary decisions are enforced for increasing charges, it discourages other investors to come forward, since it undermines the value of the assets for which he has made investments. This also greatly discourages the same investor from coming back to invest in other projects. There is an absence of transparent authority to monitor policies in the country.

Despite airlines globally contracting their expansion plans, why do international carriers like Gulf-based Qatar Airways, Bahrain Air and Air Arabia find the Indian market lucrative in terms of load factors?

Certainly, Gulf carriers find good traffic to and from India. Also, Gulf is a gateway to major European destinations. Fliers can take a non-stop flight from Gulf to any European nations. In fact, carriers like Singapore Airlines and even British Airways are in a reduction mode but Gulf-based carriers have good loads from India for further travel to Europe.

Talking about crisis that has hit national carrier Air India, can you think of any measures that can help the carrier bail itself out of sagging revenues and rising expenses?

I have observed Air India for over 35 years. It has been a great global airline for years. But of late, its status is declining. It?s not just Air India, even US-based Delta, as well as British Airways are facing the brunt of a global slowdown. There are no clear policies for integration between the erstwhile Indian Airlines and Air India. It should be a much smaller airline in terms of staff strength with more focus on stronger network. Also, unions attached to the airline and the staff should accept strategic changes that can help the carrier. Frankly speaking, this cannot happen in India. The current circumstance is very critical for Air India compared to its past. The situation may last for a year or two. There will be an agitation if the unions are asked to accept a pay cut. However, even British Airways has asked its employees to work without pay for a month and it worked. A major strategic restructuring is also required at Air India. The carrier is protected by the government and is not able to run efficiently. When you project a carrier for so long, it becomes a belief amongst employees that the government will bail it out somehow.

The aviation sector in India is projected to post huge losses. Will carriers fly back into the black in the medium term?

Except for Air India, other private carriers like Jet Airways, Kingfisher Airlines and GoAir will not get any bailout package from the government. They might get partial bailouts but eventually they will fly into the black. They will have to adjust themselves financially. In India, there are no bankruptcy protection laws like the one in the US. Chapter 11 of the US Bankruptcy Code helps the bankrupt company in case it files for insolvency. The law protects the insolvent company against its creditors in the US.

How important is development of non-metro airports in the country?

It?s not necessary to get traffic if you build airports in smaller cities. Yes, some cities are under-served, and low cost airports would work in that case. But again government regulations are to be dealt with.

Do you see the trend of mergers and acquisitions coming back after the Air India-Indian Airlines, Jet-Sahara and Kingfisher-Deccan merger?

At a time when all carriers are in bad shape, foreign direct investments would work, but government rules don?t allow it.