Indian aviation transformation: 49% foreign airline investment, lower airport charges, fuel taxes

India's government is finally taking significant steps to overhaul the aviation sector. Following a particularly turbulent couple of years which has driven some airlines to the brink of bankruptcy (and sometimes beyond) and caused heartaches for airport operators, the new structural challenges are a last ditch response to restore the market's strong growth trajectory.

The 16-Oct-2012 announcement by the Ministry of Civil Aviation that hefty airport development fees charged on passengers departing from Delhi and Mumbai will be abolished from 1-Jan-13, is a welcome development for India's airlines. The resultant lower fares should stimulate traffic and enhance the overall viability of the sector. It does however raise a financing gap issue for the airports operators, which they will have to address through a combination of debt and equity.

This welcome development follows closely on from the decision in Sep-2012 to permit foreign airlines to invest up to 49% in Indian carriers. Although this is unlikely to result in an immediate rush of investors, it is a breath of fresh air that should drive long term benefits. The eventual entry of strategic capital and expertise will be important for establishing a more professional and corporatised sector.