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Government Bail outs and FDI – a Game Changer for the Indian Aviation Industry

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Indian Aviation Industry

The Indian aviation industry gave a very poor performance. We are still lagging behind the aviation industry of the other countries in terms of performance. It is needless to say that the sector is among one of the most technically challenged and under developed sectors in the economy.

Kingfisher Airlines which was one of the largest players of the Indian aviation sector earlier and enjoyed maximum market share previously,  is currently grounded and has shut down its operations, due to its inability to service the rising debt. Other companies like Jet Airways is also facing a tough time, due to its rising debt.

Read on GWI Kingfisher – the King of Good Times is facing a Tough Time.

Government Actions to help the Indian Aviation Sector

i) Airline Turbine Fuel – As far as the governmental policies are concerned, the government efforts in notifying the Airline Turbine Fuel to bring down the sales tax, to help reduce the cost of operations for the players has seen no advancement as of yet. But the news of government efforts gave a false signal to the market leading to a boost in the share price.

ii) Bail Out – The government’s bail out of Air India has given the national carrier enough opportunity to gain market share but such money infusion problem is only hitting the industry’s profitability. As far as Kingfisher Airlines is concerned, the situation is much worse. It is neither in a state to revive and fly again, nor can the company do away without reviving. The continuous tries by the management to help the airline revive with half measures is only diminishing the industry’s image on an international level.

FDI in Indian Aviation Industry

FDI in aviation which was recently announced by the government gave a ray of hope for the industry players, but as of now no new investment has been made by the foreign players in the sector. Post announcement of FDI in aviation, the shares of the Indian players started flying and in few cases like Jet and Spicejet. But they are now quoting at three times their 52-week lows.

Further the deal of Jet Airways with Eithad for a stake sale and again with Kingfisher also gave false signals which resulted in an increase in share prices. Even the implementation of FDI, which was indeed a much required step for the sector, is not doing any good for the companies or for the sector. FDI is certainly not a game-changer for the industry. Despite being a good thing for the sector, it will not solve the problems of Indian aviation in any manner.

FDI to first solve the basic problems of the Indian Aviation Industry

Under the current state of the industry, majority of money which comes from foreign players if any, will only be used to address basic problems of financial restructuring or payment of debt/interest. To make the industry work, it is very important that the operating conditions are improved. Complex policies which include high taxes, high airport costs and congestion are some of the problem which results in heavy operating cost for the operators. Thus, until these problems prevail in the economy, it is impossible to get people to invest in airlines.

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Despite FDI implementation in the sector, it is very less likely that the sector will see any investment from the foreign players in the sector sometime soon. All thanks to the paralyzed condition of the Indian aviation. Unless conditions in India are improved for the airlines, it is impossible to get foreign carriers pouring in their cash into the industry. Every capital be it foreign capital or domestic, needs a return under any circumstances and investment in Indian aviation is certainly not getting that as of now.

Thus it can be very well said that only sugar coated words by the government would do no good for the industry. Rather action is required to make the environment operable so that the foreign investments could be invited and the sector could see some revival soon. Absence of proper environment will only add woes to the sector.


Niraj Satnalika

Niraj is an MBA in International Business (Finance). Prior to this he completed B.Tech in Electronics and Instrumentation. He is currently working with Confederation of Indian Industry (CII), Kolkata in capacity of Consultant. Satnalika is actively involved with an NGO and works towards promoting education among the underprivileged.

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