Qatar Airways' plans to set up an airline in India may face political and regulatory hurdles

New Delhi: Qatar Airways has been interested in traffic from India for a long time. It was wooing India’s biggest domestic airline, IndiGo, for an equity partnership earlier to gain a foothold in this market but IndiGo did not respond to its overtures. Frustrated at IndiGo’s persistent refusal, Qatar has now come up with a proposal to set up an airline in India from scratch. The recent government move to allow 100 percent FDI in commercial aviation may seem to be the trigger for this bold move by Qatar. Whether it will succeed in overcoming the myriad regulatory hurdles in this endeavour remains in doubt.

But what is more important to understand is its actual motivation in eyeing the Indian traffic: It wants to make Doha a bigger international aviation hub and the Indian narrow body traffic will likely feed into the existing global network of Qatar Airways. The focus of the government of Qatar (which wants to invest through its sovereign fund) and Qatar Airways is onward traffic from Doha; let us not be fooled about any intentions of a new airline in India setting up a wide domestic network or feeding domestic underserved routes.

As per revised FDI norms, equity stake of a foreign airline in an Indian carrier cannot breach the 49 percent mark. But a relaxation of restrictions last year means foreign sovereign wealth funds and portfolio investors can potentially acquire 100 percent holdings – this is possibly the route that the Qatar government and its airline will take to seek approvals for a new airline venture in India.

Reuters

Reuters

Qatar’s desperation about India stems from the fact that it has, for long, been interested in increasing bilateral weekly seat entitlements but hasn't been unsuccessful. Its entitlements stand at a little less than 25,000 seats a week when the airlines from neighbouring UAE – Emirates and Etihad – have almost double the weekly seat entitlements. The Indian government has not been keen to enhance Qatar’s entitlements, taking the plea that our airlines are not even using a bulk of their current seat entitlements and that an increase will only help Qatar.

What better way to thwart this scenario than to set up an airline in India, use its feed, own global network and enhance the hub appeal of Doha? Remember, India is now the world’s fastest growing aviation market and with the government’s ambitious UDAN scheme, it is possible that some of the hinterland also comes on to the aviation map, further increasing air traffic. Getting a foothold in India makes more sense for Qatar, an airline which seems to have no shortage of funding.

Remember, Qatar Airways is the biggest shareholder in the IAG group which owns British Airways; it also owns stakes in Italy’s second-largest airline Meridiana Fly SpA. So, will everything fall in place for Qatar as we speak? Kapil Kaul, CEO and Director of CAPA South Asia told Firstpost it was very unlikely. “Very unlikely that this project will get all the regulatory approvals. FIA (Federation of Indian Airlines, a lobby group) will fiercely oppose Qatar’s entry. FIA is against 100% FDI in domestic airline operations. I don’t rule out political challenges besides challenges in securing all regulatory approvals. These include treating Qatar Investment Authority as totally separate from Qatar Airways…….(this) would mean changing all rules of the game”.

Put simply, this raises a question on why the Indian government will treat Qatar Airways and Qatar Investment Authority as two separate investor for complying with the FDI cap on foreign airlines, when the Authority is an investor in the airline anyway. The second point of contention could be Indian rules on ‘substantial ownership and effectice control’ which mandate that not only should the principal place of business of any airline started in India should be India, but also that 2/3rds of all directors and management should be Indian. Would Qatar want this? There is also the grey area over whether an airline set up under FDI norms in India is allowed to fly overseas.

Meanwhile, the Civil Aviation Ministry seems pleasantly surprised about Qatar’s plans for starting an airline in India even as officials say that they will issue approvals within the existing rules’ framework. Does this mean that the two countries, Qatar and India, will once again seek a deeper friendship than merely allowing a new airline to start from one country?

This piece talks of how, following Prime Minister Narendra Modi’s two-day visit to Qatar last year, its sovereign wealth fund (Qatar Investment Authority) was eyeing investments in India’s infrastructure sector. Perhaps the answer to Qatar’s quest of Indian air traffic lies in enhancing investments through this sovereign fund into India?


Published Date: Mar 09, 2017 04:15 pm | Updated Date: Mar 09, 2017 04:15 pm