Foreign investment eyed to rescue Indian airlines

The bonds of state-owned Air India are rallying for a fourth month as the government seeks foreign investment to fund a rescue plan for the nation's debt-laden airlines. Aviation Minister Ajit Singh said in New Delhi on January 17 that the cabinet may soon allow international airlines to buy as much as 49 per cent of local operators, helping the industry repay debt the government estimates will approach $20 billion (Dh73.4 billion) by March. Kingfisher Airlines, which cut flights after 16 straight quarterly losses depleted its cash, told lenders it may receive a $250 million equity investment, said three people familiar with the transaction who declined to be identified because the talks are private. The yield on Air India's 10.05 per cent notes due in 2031 fell 25 basis points this month to 9.20 per cent on January 12, the lowest level since the notes were issued in September, according to prices from the Fixed Income Money Market and Derivatives Association of India. That compares with 10.72 per cent on the 2016 bonds of AMR, the American Airlines parent that filed for bankruptcy protection in November. ‘No clear rationale' "Allowing foreign carriers to participate in the industry would be a welcome decision, as there's no clear rationale to bar an investor class with most expertise," Binit Somaia, a Sydney-based director at CAPA Centre for Aviation, an industry consultant, said in an interview on January 17. "Strategic investment by global carriers will provide confidence for further institutional capital inflows." India's move to ease investment rules may help the nation's cash-strapped airlines access funds and expertise and give an opportunity for overseas carriers to get a slice of the domestic market, where traffic is forecast to surge fourfold by 2020. Foreign airlines are now barred from owning shares in Indian carriers while non-airline investors from overseas can hold as much as 49 per cent. The combination of seven interest-rate increases by the Reserve Bank of India and a 31 per cent jump in jet-fuel costs in the past year has widened losses, with low-cost carrier IndiGo being the nation's only profitable airline. Five-year borrowing costs for AAA-rated companies climbed 24 basis points in the period to 9.40 per cent on Wednesday, while similar yields fell 35 basis points to 4.62 per cent in China. Avions de Transport Regional, a joint venture of European Aeronautic, Defence & Space Co. and Finmeccanica of Italy, removed an order for new planes from Kingfisher from its bookings tally last year after assessing the financial risk of the Indian carrier, ATR chief executive officer Filippo Bagnato said in Paris on Wednesday. India's airlines need about $2.5 billion of new cash to maintain operations, including $1.32 billion for Air India, according to the Sydney-based CAPA. Kingfisher needs about $400 million by next month, according to CAPA. In November, the heads of Indian carriers met Prime Minister Manmohan Singh, seeking the government's assistance to stem industry losses. Mounting losses Losses at Bangalore-based Kingfisher, controlled by billionaire brewing tycoon Vijay Mallya, more than doubled to Rs4.69 billion (Dh341.6 million) in the three months ending September 30. Gurgaon, India-based SpiceJet lost Rs2.4 billion in the same period. Jet Airways may report a fourth straight quarterly loss of Rs3.5 billion for the last three months of 2011, according to the median estimate of analysts in a Bloomberg survey. Air India, unprofitable for four years, has taken Rs32 billion in government handouts since April 2009 to stay in business.