Sept. 14 (Bloomberg) -- India’s cabinet may today consider allowing foreign airlines to buy stakes in local carriers, according to two government officials with direct knowledge of the matter.
Ministers may review a plan to permit carriers to acquire as much as 49 percent of local counterparts, the people said last night, asking not to be identified, citing rules.
Kingfisher Airlines Ltd., struggling with five years of losses and a cash shortage, and other carriers jumped in Mumbai trading as the move may let them raise funds. A decision may also help break two years of political deadlock that has prevented Prime Minister Manmohan Singh from easing overseas investment rules including allowing retailers such as Wal-Mart Stores Inc. to open local shops.
“If foreign investment in aviation is allowed, it will improve the sentiment about the sector even if it doesn’t lead to any investment immediately,” said Binit Somaia, a Sydney-based director at CAPA Centre for Aviation, an industry consultant. “It also shows that the government is trying to kick start the economy and encourage foreign investment.”
Non-airline investors from overseas are already allowed to hold as much as 49 percent in local carriers. India has been planning the policy change on investment by airlines for more than three years as industrywide losses hindered companies’ efforts to raise funds needed for expansion.
Any deal today could signal an easing of tensions between Singh’s Congress party and its coalition partners including Mamata Banerjee, leader of Trinamool Congress, who has led political opposition to opening up Asia’s third-largest economy. The split has hampered efforts to push through various pieces of legislation.
Kingfisher, controlled by billionaire Vijay Mallya, jumped 7.5 percent to 10.80 rupees, the highest since July 10. SpiceJet Ltd. gained 4.4 percent while Jet Airways (India) Ltd. rose 2.1 percent.
Kingfisher is seeking cash to maintain services after losses prompted it to slash two-third of services and ground planes. Some of the potential investments in Kingfisher depend on the change in foreign ownership rules, its Chief Executive Officer Sanjay Aggarwal said March 20.
The carrier, based in Bangalore, has pledged assets ranging from its brand to office furniture for loans of 64 billion rupees ($1.2 billion). Its market share has slumped to sixth from second after cutting flights and losing passengers amid disruptions caused by delays in paying salaries and fuel bills.
Kingfisher also ended international operations and delayed Airbus SAS A380 deliveries beyond 2016 because of the losses. It was also shut out from International Air Transport Association’s billing systems after failing to pay required cash deposits.
Jet Airways, India’s biggest carrier, and Kingfisher have been planning to raise funds through rights offers for more than two years. Both the airlines plunged more than 65 percent in 2011. Jet said last month that it plans to sell and lease back some planes to pare debt by about $400 million.
Jet and SpiceJet Ltd., India’s only listed discount carrier, posted a profit in the three months ended June 30 after five straight quarters of losses. State-owned Air India Ltd. has been losing money at least for five years.
India in February allowed carriers to directly import jet fuel to help them avoid paying local taxes. Buying the fuel from overseas may help airlines cut their biggest expense as they would no longer have to pay fuel taxes imposed by state governments that average 24 percent.
In November, chiefs of Indian carriers met Prime Minister Singh as they sought the government’s assistance to stem industry losses. The nation’s airlines will probably lose $1.4 billion in the year ending March, compared with $2 billion a year earlier. according to CAPA.
In the federal budget for the year started April 1, the government allowed airlines to borrow overseas for their working capital requirements.
Indian carriers’ debt may have reached close to $20 billion in the year ended March 31, based on a December report by the aviation ministry. Working capital loans and dues to airport operators and fuel companies account for half of this amount, according to the report.
Airlines are losing money at a time when economic growth and rising disposable incomes are boosting travel demand. Industrywide domestic passenger numbers rose 17 percent in 2011 to 61 million, according to data from the Directorate General of Civil Aviation. Carriers in India will need 1,450 new aircraft worth $175 billion through 2031, according to Boeing Co.