Thursday, February 5, 2009

Jet-KF alliance likely to hit air pocket

MUMBAI: The differences that have cropped up between Jet Airways and Kingfisher Airlines, the country’s two largest private carriers, on the

issue of FDI participation by foreign airlines in the domestic aviation sector threaten to derail their strategic alliance.

It was known that all was not well between the airlines, but it now appears that the issue is now out in the open. The tussle between the carriers on the FDI issue may have a bearing on their alliance that was formed last October to streamline capacity, rationalise routes and to bring about a code-sharing arrangement.

“We don’t see any value in the FDI policy currently as airlines globally are bleeding. Jet Airways is neither discussing stake dilution with any foreign airline, nor is it referring the case to the government,” Jet Airways CEO Wolfgang Prock-Schauer told ET recently. Kingfisher Airlines chairman Vijay Mallya earlier wrote to the government to allow FDI in domestic carriers. Interestingly, Kingfisher is believed to be discussing a stake sale of 25% with three foreign airlines.

“At this juncture, a difference in opinion between them (Jet and Kingfisher) may hamper the alliance, which is yet to take off after three months,” an analyst with a Mumbai-based domestic brokerage firm said, on condition of anonymity.

Naresh Goyal, Jet Airways’ promoter, and Vijay Mallya had a closed-door meeting in London in December to look for ways to avoid duplicating flights on domestic and overseas routes. The meeting did not yield anything of consequence. With the Jet-Kingfisher alliance not progressing too smoothly, a difference in opinion on the FDI issue is not the best piece of news at this juncture.

Current regulations do not allow foreign carriers to hold equity, either directly or indirectly, in domestic airlines. Importantly, India is the only country where foreign institutional investors are allowed to invest in the aviation sector with a FDI cap of 49%.

Most Indian carriers are already sitting on significant debt and raising additional resources may not be easy in the prevailing conditions. United Spirits (USL), a UB Group company, has pledged its shares to fund Kingfisher’s expansion plans.

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