Indian Private Sector Airlines Ask For A Ban On AirAsia's Entry Into India

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Air Asia
Aircrafts of budget airlines JetStar and AirAsia sit on the tarmac at Singapore's Changi Airport on Feb.6, 2014.

India’s private-sector airlines have come together to ask for a ban on AirAsia’s (OTCMKTS:AIABF) entry into the Indian market, which is expected to happen this year, on the grounds that it would further harm the bottom lines of the existing carriers.

The Federation of Indian Airlines, or the FIA, has written the Director General of Civil Aviation, or DGCA, the country's aviation regulator, warning that granting a permit to the Kuala Lumpur-based carrier would drive India's struggling airlines toward bigger losses. According to Mint, a local business newspaper, the letter, sent to the DGCA on Feb. 11, stated:

“The members of FIA reiterate that application on behalf of AAIPL (AirAsia India Private Limited) is not permitted under the FDI policy as it applies only to existing airlines and if allowed will defeat the policy and throw back the existing member airlines into deep losses.”

The airline industry in India currently has a debt of $12.6 billion and cumulative losses of $8.6 billion. Four major airlines in the country, Indigo, SpiceJet (BOM:500285), Go Air and Jet Airways (BOM:532617) have signed the letter, according to Mint.

"The new joint ventures would have the opportunity to unfairly compete with the existing airlines, with huge losses and starved of capital, and thereby ensure that the existing airlines become even more vulnerable which could result in their ultimate closure," the FIA and IndiGo said, according to the Economic Times.

Some of the domestic carriers argued in a letter, the Economic Times reported, that the current policy of allowing foreign investment into the domestic aviation sector is geared toward providing access to capital and partnerships with international carriers so existing domestic airlines can expand and improve their profitability, and that the policy does not extend to new entrants to the market.

The DGCA is expected to provide its final approval Friday to AirAsia's domestic venture, which will be launched in partnership with Tata Sons, an arm of the Tata group of companies. The latter has a 30 percent stake in the discount airline, while AirAsia owns a 49 percent stake. The remainder is owned by Mumbai-based Telestra Tradeplace.

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