FDI will not lift KFA; Middle-East, SE Asia are keen:CAPA

Kapil Kaul, CEO, South Asia, CAPA (Centre for Asia Pacific Aviation) explains to CNBC-TV18 that the allowing of FDI in aviation does not come as a blessing for Kingfisher Airlines as overseas investors will not be interest until the promoters invest USD 300-400 million. Kaul also forecasts that the interest will not be from Europe or the US, but from the Middle-East and Southeast Asia.

Below is an edited transcript of the reaction on CNBC-TV18. Q: Do you believe that there will be foreign investors in the aviation sector?
A: First of all, we at CAPA strongly welcome this announcement and believe that this was long overdue. Unfortunately, it was denied to the industry for the last 15-16 years and I must complement the minister for doing what none of his predecessors could do. I think it is a very important milestone and I am quite sure that in the near-term it will bring in strategic capital. It will also bring financial capital and expertise. So, I think we need to strongly welcome it. Q: Will SpiceJet and GoAir benefit the most?
A: Yes, I think that SpiceJet and GoAir would be the immediate beneficiaries, though it will not be so easy as the due diligence has not begun. Q: How difficult will it be for Kingfisher?
A: For Kingfisher, the situation is very difficult. But though there are high hopes of foreign investment, it remains to be seen if the promoter will invest USD 300-400 million in equity. And without that I don't think any restructuring is possible. Q: But a strategic investor taking a call over a financial investor as a long-term play may perhaps improve the situation?
A: My view is that the promoter first has to put USD 300-USD 400 million followed by the banks two and the foreign investors would come in last. Q: Who are the international carriers that would be interested?
A: I think it would be tough to expect foreign interest till the money comes from the promoters and the banks agree to take a hair cut. What is required is a one-time, decisive investment of capital and Mallaya may require USD 600 million immediately and almost a USD 1 billion in stages. So, it is going to be difficult.
_PAGEBREAK_ Q: Singapore Airlines has been the first private carrier that had expressed interest in India. Will Singapore Airlines look at India again because they are already one of the largest investors in the Indian telecom sector?
A: I must tell you that the antagonistic positions of Emirates or BA will change over a period of time. India's structural challenges would drive away even the most optimistic investor, but eventually over a period of time I think it will change.
As far as the Singapore Airlines is concerned, they remain interested in this market. Middle East and South East Asian carriers, particularly who operate from major hub like Dubai, Abu Dhabi. Doha, Singapore or even maybe even Cathay from Hong Kong, they would continue to be more interested than airlines that would come from Europe or US.
But apart from structural challenges and the policy environment becoming more certain, a lot issues that will now arise will have to be addressed such as the due diligence process and the procedure for raising gross capital because most of the money that would come from foreign sources will not be enough. RELATED LINKS:

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