FDI hike not enough: Help aviation become stronger

The government proposal to allow 74% FDI in aviation sub-sectors such as cargo, non-scheduled airline operations, helicopter services and regional airlines is a welcome reform. But without an inherently strong airline industry, it is unlikely to galvanise much investment.
The government must allow foreign airlines to invest in our airline companies within the 49% limit and increase that limit over time. Despite a reasonable 49% limit, FDI in aviation has remained low whereas even a conservative 26% limit in insurance has not deterred overseas investment. Telecom had also attracted billions with a 49% limit. This has largely to do with the poor fundamentals of the airline business, which makes investment in sub-sectors risky.
Although domestic travel is growing at a phenomenal rate, the local airlines are not making profits because of extremely competitive pricing and high cost structure. And with both competition and capacity expected to increase substantially, the sustainability of the aviation boom is under threat.
02/12/06 Economic Times

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