Airline stocks take off on FDI talks in the ministry

Moneycontrol Bureau

Shares of Kingfisher Airlines rose almost 4% at Rs 20.85 on the Bombay Stock Exchange following reports of the Department of Industrial Policy and Promotion (DIPP) writing to the aviation ministry asking the latter to allow foreign airlines to pick up stakes in domestic airlines.

Kingfisher straddled with a debt of around Rs 6,000 crore has been lobbying with the government to get permission for international carriers to pick up stakes in Indian airlines. Currently, foreign direct investment (FDI) is not allowed in Indian airlines.

The story is no different with Jet Airways which is also keen to have liberal investment policies for the sector. Hence, this news boosted Jet stock by 3% at Rs 233.70.

SpiceJet, a low fare rival of Kingfisher and Jet also quickly climbed 3% at Rs 21.60 following the news.

Meanwhile, the last development in this sector happened in August 2009 when the DIPP proposed that international carriers be allowed to pick up equity stake to the tune of 25% in Indian airline companies, but that issue was put on the backburner.

According to CNBC-TV18, DIPP Secretary RP Singh has written a letter to his colleague in the aviation ministry where he says that private equity firms cannot be expected to pick up equity stake in domestic Indian carriers as it is very risky sector. Singh believes only foreign airline companies will be willing to pick up stake as they are better equipped to understand the sector. They will be willing to derive synergy because of these alliances.

The letter goes onto say that many of these Indian airline companies are in dire need of capital and if any of these carriers in India collapse, then it will also impact the Indian financial sector as a lot of Indian financial institutions have provided debt to these companies.

However, sources say that there has been no response from the aviation ministry regarding this issue.

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