India has the third-largest domestic aviation market in the world. It is now considering making it easier for foreign airlines to invest in Indian airlines.
According to an unnamed source in Prime Minister Narendra Modi’s government, tourism website Skift which is Nordic for “shift” or “transformation” is reporting that India is considering amending a foreign ownership rule when it comes to domestic airlines.
When you look at airline ownership rules in India it is a little misleading as the country allows 100% ownership in India-based airlines providing they have government approval.
The truth, however, is that foreign investment in Indian airlines is limited to a 49% stake like Singapore Airlines stake in Tata-owned Vistara.
India cannot find a buyer for Air India
The reason why the Indian government wants to relax its rule on foreign airline ownership is that it cannot find a private buyer for state-owned Air India.
Debt-laden and overstaffed, with around 12,000 employees who enjoy incredible benefits like medical insurance for their entire families for life… Air India isn’t in the best of shape. On a domestic level as a full-service airline, it cannot compete with the private sector and the airfares offered by the likes of Spicejet and IndiGo.
Internationally it has to compete with Gulf carriers Emirates, Qatar, and Etihad. Quite honestly, those airlines provide a better service with more connections to the India subcontinent than Air India could ever manage.
The only thing Air India has that could be enticing to a foreign buyer is coveted landing slots at some of the world’s major airports.
Seriously though, if the Indian government wants to get the loss-making airline of its books it would have to allow the buyer to fire tenured staff and start over with a new business model. This, of course, is something that airline workers’ unions would never allow, as working for Air India is considered as being a job for life.
Qatar Airways would like to buy IndiGo
According to the unnamed source that Skift refers to in their article, someone from India’s Department for Promotion of Industry and Internal Trade asked the government if they could not change the substantial ownership and effective control clause that limits foreign ownership in an airline to 49%.
While I do not believe that allowing a controlling foreign interest in airlines would help find a buyer for Air India, it would open the door for Qatar Airways to move into the Indian domestic market place.
IndiGo would be a good fit for Qatar Airways
Having already signed a codeshare agreement with India’s biggest airline IndiGo, the Doha based carrier would love to add IndiGo to its portfolio to compete with rising Middle Eastern low-cost carrier’s flyDubai, Air Arabia, and Jazeera Airways.
Dubai based Emirates already has a strategic partnership with flyDubai while Air Arabia is teamed up with Etihad.
Given these circumstances a substantial investment in one of the world’s fastest-growing domestic air travel markets, it would make sense for Qatar Airways to acquire IndiGo.
As for Air India, the government must realize by now that nobody wants to buy it and the sooner they pull the plug the better off they will be.