The Indian home ministry has declared no objections to an increase in foreign direct investment (FDI) in Indian airlines to 26% proposed by the civil aviation ministry in November. However before it can be approved, the industry needs to secure an exemption from the takeover code, which stakes that the acquisition of a 25% stake automatically triggers an open offer.
The finance ministry is reported to be in negotiations with the Securities & Exchange Board of India (SEBI) to secure such an exemption, once that is achieved the Department of Industrial Policy and Promotion (DIPP) will move the cabinet note on this proposal.
Shares in Kingfisher Airlines and Jet Airways rose 3% and 4% in early morning trade following the news. Cash-strapped Indian carriers today are not allowed any foreign investment, so once passed, removal of the FDI cap could be a lifeline for many.
As this news service stated in 2010 and as we have written years before that - with the backing of several brokers – the ETS can be a real earner.
Scientists from the Massachusetts Institute of Technology and Muenster University in Germany have confirmed that if carriers pass on all additional costs, including the opportunity costs associated with free allowances, to consumers, profits for US carriers will increase. The research was funded by the US government and published in the Journal of Air Transport Management (Volume 19, March 2012, Pages 36-41).
The report states: “Windfall gains from free allowances may be substantial because, under current allocation rules, airlines would only have to purchase about a third of the required allowances. However, an increase in the proportion of allowances auctioned would reduce windfall gains and profits for US airlines may decline.”
Researchers estimate that US airlines may post windfall gains of as much as $2.6 billion after their inclusion in the EU ETS. US Carriers are already passing on costs of the scheme, with several airlines raising fares by $3 to offset the extra ETS costs.
The research also notes however that if airlines only pass on the costs of allowances purchased or do not pass on any costs at all, then there will be no windfall gains and profits will decrease.
Getting the commercial strategy right is essential for all airlines that fall under the EU ETS rules. This article published by Airline Economics gives pointers on carbon commercial strategies and discusses whether carbon hedging is the right option. Click here to view the article: http://viewer.zmags.co.uk/publication/95328d6a#/74033123/52
Indian FDI increase gathers momentum, while MIT proves money can be made from the EU ETS.
