Low taxes, infra key to aviation biz take-off not FDI: IATA

Tony Tyler - CEO, IATA.

In an interview CNBC-TV18 director general & CEO, IATA Tony Tyler pointed out that lower taxes, tighter control on costs and creation of adequate infrastructure are key to a business environment that will lure increased investment into the aviation sector.

"I don’t think I have ever been bearish about the Indian market. I have been only concerned about some of the policies that make it very difficult to exploit the market profitably for airlines," he added.

Below is an edited transcript of the interview on CNBC-TV18

Q: A few months ago you seemed very bearish on India. Since then, the government announced a slew of reforms including the liberalisation of the aviation sector by allowing foreign direct investment (FDI). Do you still continue to be as pessimistic and bearish?

A: I don’t think I have ever been bearish about the Indian market. I have been only concerned about some of the policies that make it very difficult to exploit the market profitably for airlines such as in the high taxation, high costs and inadequate infrastructure. Those three big problems still exist though foreign airlines have abeen allowed to invest directly in Indian carriers and the doing away of the process of going through a committee to bring aircraft into the fleet.

Q: Despite Etihad’s interest in Jet Airways, the deal hasn't been closed. Air Asia’s has application to commence operations in India has been cleared by the Foreign Investment Promotion Board (FIPB). Do you believe there are going to be more foreign companies planning to pick up stake in Indian airlines or entities like Air Asia who want to start a greenfield operation?

A: It is very positive to see both investing in the Indian aviation market. But allowing foreign direct investment into Indian carriers is not in itself a panacea. There is still a need for joint policy making to create the right business environment. If you want to lure investments, there has to be an attractive framework consisting of lower taxes, tighter cost control and creating adequate infrastructure.

Q: With the Indian economy affected by a considerable slowdown, how do you see the Indian aviation market shaping up?

A: Generally, aviation traffic growth usually runs at about twice the number of the figure of gross domestic product (GDP) growth. So, if GDP growth comes down, growth in aviation and air traffic often comes down as well. We will have to see what happens here in India because other factors of course come into play as well such as the stimulus from new carriers or entry of increase capacity. Though Kingfisher’s exit dampened the market last year, I wouldn’t be surprised if there isn’t some recovery this year.

Q: What is your assessment about the current fracas between Kingfisher’s lessors, the government and the airline in question and how it is likely to impact investment in India?

A: It’s a story like any business that goes out of business. If you let your costs run away from your revenues then you are on a slippery slope. And I guess that’s what happened to Kingfisher.

Certainly some leasing companies and banks would have got their fingers burnt. It is very important that the Indian government facilitates the cleaning up of any leases and allowing lessors to repossess their aircraft from Kingfisher if Kingfisher is unable to pay, without constraint because if they don’t do that they are going to make the environment very difficult for other carriers in India who want to lease aircraft.

So, it is important that the lease contracts are followed and the lessors are able to get their hands on the aircraft again if they are in default.