British Airways plan to buy GoAir hits legal roadblock

According to a PTI report, British Airways' (BA) multi-million pound takeover plan of Low Cost Carrier (LCC) GoAir got derailed and the Europe's leading carrier may now negotiate for a marketing alliance instead.

The report, which quoted UK’s The Sunday Times, “British Airways planned an audacious, multi-million pound takeover of one of India's leading airlines - but the scheme was derailed by problems with industry-ownership laws.” However, the daily said that it is understood BA may negotiate a marketing alliance with GoAir instead, with the LCC using BA flight codes on its domestic network.

Quoting senior industry sources, The Sunday Times said, “BA wanted to take a controlling or significant minority share, and was ready to pay up to USD 600 million for the stake.” As the commercial aviation sector in India has tough rules preventing foreign nationals from owning or taking control of airlines, BA aimed to get round the restrictions by setting up an Indian intermediary company to hold its investment in GoAir, the newspaper said.

The current Foreign Direct Investment (FDI) Policy of India does not allow foreign carriers to hold equity, directly or indirectly, in domestic airlines. BA's decision to pursue an Indian tie-up has piqued the interest of rival airline executives, who have been focused on the stuttering progress of its planned merger with Spain's flag carrier, Iberia, The Sunday Times said.

Quoting one rival airline executive, The Sunday Times said, “I think it indicates where they think the real future of the airline industry lies, and where their next deal might come from India or China.” BA has had franchise agreements with South African carrier Comair, Glasgow-based Logan Air, Scandinavia's Sun Air and Kenya-based Regional Air.

This raises an interesting question. The Indian airline industry is loosing over $2 billion per year. Like it or not, this requires deep pockets; pockets much deeper than Mr. Goyal or Dr. Mallya have. Also, integrating in to extensive global networks is not just a "must have", but it is vital to an airline's survival, again something neither Jet or Kingfisher have. Is it time for the FDI norms for the airline industry to be reviewed ? Will the review survive intensive lobbying by industry heavy-weights like Mr. Goyal or Dr. Mallya ?