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Indian Aviation Industry

India may allow direct foreign investment in domestic airlines

India may allow direct foreign investment in domestic airlines
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Oct 23, 2011

NEW DELHI, India - Indian government has initiated inter-ministerial consultation for allowing foreign airlines to buy equity in domestic carriers. Highly placed sources have told Business Line that, after an in-principle approval from the Civil Aviation Ministry, the Department of Industrial Policies and Promotion (DIPP) has moved the proposal. However, there are differences over the limit for foreign airlines, they added.

As soon as this consultation process is over, the proposal will be placed before the Cabinet for a final decision. All the three main full-service airlines — Air India, Kingfisher and Jet Airways — are hard pressed for cash.

The Civil Aviation Ministry is believed to be in favour of permitting 24 per cent equity for the foreign carrier. But DIPP thinks 26 to 49 per cent would be better. The Cabinet will decide after seeking views from the various ministries, sources said.

Currently, the foreign direct investment limit is 49 per cent in scheduled domestic passenger airlines and 74 per cent in non-scheduled domestic passenger airlines. But, “no foreign airlines would be allowed to participate directly or indirectly in the equity of an Air Transport Undertaking engaged in operating Scheduled and Non-Scheduled Air Transport Services, except cargo airlines”, says the law.

This has been a severe handicap to India's domestic carriers seeking cash. Air India's cumulative losses have mounted to over Rs 23,000 crore while for Kingfisher, this amount is Rs 4,283 crore. Jet recently raised Rs 325 crore by pledging the entire promoter's stake of JetLite, its low-cost arm.

Some domestic industrial groups are also said to be in the market to buy one of the two private airlines.

About 15 years ago, the Tata group had been very keen on starting an airline. But nothing had come of it.

Source: thehindubusinessline.com
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