Taking off

Jet-Etihad deal showcases the potential for growth in a cramped and ailing sector

Jet Airways's sale of a 24 per cent stake to Abu Dhabi's Etihad Airways for approximately Rs 2,050 crore is a win-win for the two airlines. It is also a much-delayed step into the future for India's crisis-hit civil aviation sector. Jet has become the first Indian carrier to utilise the government's change of policy last September to allow foreign airlines to acquire equity in Indian carriers. While Etihad gets access to India's large outbound passenger market, Jet will see a near-tenfold increase in its capacity in addition to strategic expertise, cheap financing and fuel import benefits, apart from a doubling of its market worth. The deal suggests the potential for restoring growth in the cramped and ailing sector.

At a time when global perception of the Indian economy is gloomy, the Jet-Etihad deal underscores the fact that civil aviation is a growing market in India that will continue to invite competition and investment. Having posted a loss of Rs 10,000 crore for FY2011-12 due to adverse circumstances, however, the industry is by no means out of the woods. Instead of throwing good money after bad, such as in providing a sovereign guarantee to Air India's debts and bailing it out, as with the Rs 30,000 crore package last year, the civil aviation ministry should have left AI to fend for itself and given private carriers the leeway to strike the best deals for themselves. That is the best way for struggling airlines to raise capital and for well-performing ones to expand.

The ultimate beneficiaries of change in the sector will be the passengers. Jet's plans to connect 23 small Indian cities will increase the entry and exit points for international passengers. Similarly, the proposed low-cost AirAsia-Tata airline will lower prices by increasing competition in the price-sensitive market. Now, it's time for a pragmatic policy on bilaterals on the profitable Middle East route alone, for instance, 75 per cent of flying rights had remained unutilised till AI's right of first refusal was abolished last year and private carriers allowed to increase operations.

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