Two cheers for Indian aviation

Things might just be looking up for India’s two worst-performing airlines, Kingfisher Airlines and Air India. The former may be on the verge of being rescued by a foreign airline. The latter – no surprise – will be rescued by its usual savior, the government.

Kingfisher’s billionaire owner, Vijay Mallya (pictured), said in an interview with The Times newspaper of London on Monday that his debt-ridden carrier was in talks with two foreign airlines about a rescue package. The newspaper named IAG, the owner of British Airways, and Etihad of Abu Dhabi as potential suitors.

The Indian government is expected soon to lift a ban on investment in the aviation industry by foreign carriers – something widely regarded as essential for an industry desperate for capital even amid soaring passenger numbers.

While Mallya has, in the past, talked a big game when it comes to possible rescue deals for his ailing airline – including a $250m deal he told the FT he was on the verge of closing in November which has yet to be announced – in this case, even a debt-ridden carrier like Kingfisher would make such a good investment for a foreign carrier that analysts are inclined to believe him.

“He doesn’t have any reason to lie about this,” said Sharan Lillaney, analyst at Angel Broking. “It is something that is likely to happen if FDI opens up.”

Meanwhile, the Economic Times reported that when the government’s budget is announced on March 16, Air India will likely be getting yet another helping hand from the taxpayer in the form of a $2bn support package (including a $1.34bn equity infusion).

The struggling national carrier is renowned for delays, strikes and surly customer service. The government has already guaranteed nearly half of its $8bn-plus debt and given it about $615m in handouts in the past two and a half years.

But Air India may also have found a new way of making money. The company, if it gets government approval, may soon begin selling the 27 Dreamliner aircraft it bought from Boeing in 2005 – delivery of the first seven of which, after a delay of over three years, is set to begin this year. (A thorough investigation of the original sale and “the fall of Air India” was provided by Praveen Donthi in The Caravan.)

Sale and leaseback is a common practice among airlines looking to keep aircraft off their books.

The sale of all 27 of Air India’s Dreamliners could generate nearly $1.5bn for the company because their price has risen by nearly 40 per cent since 2005 – which means Air India might finally recoup some of the public money poured into it over the last twenty years, without having to change the way it does business very much at all.

Related reading:
Foreign airlines in India: nearly there, beyondbrics
India: open to foreign airlines, beyondbrics
Indian aviation: turning the tables, beyondbrics
Indian aviation: good news, bad news, beyondbrics
Indian aviation in crisis, beyondbrics
Kingfisher close to $370m finance deal, FT
Kingfisher Airlines: travel sickness, Lex
Kingfisher tailspin reflects government failure, FT