Airlines seek foreign cash, but ministry not game

The debt-ridden domestic airline industry is once again clamouring for permission to invite equity investment by foreign airlines.

But the civil aviation ministry is not game.
Top ministry officials have admitted that some airlines — notably Vijay Mallya’s Kingfisher — have been urging the ministry to consider their plea on allowing foreign airlines to acquire stake in
domestic carriers.

This could take care of some of the sizeable debt on the books of almost all Indian airlines. As per existing policy, equity investment is totally banned by foreign airlines.

This issue was first raised in 2009, when the ministry began deliberations under the then civil aviation minister Praful Patel for allowing some investment by foreign airlines. This proposal was subsequently forwarded to other ministries (including the commerce ministry) for their views.

The civil aviation ministry had, at that time, recommended up to 26% equity investment by foreign airlines. But the proposal was never implemented due to security concerns raised by some ministries.

Now, after Vayalar Ravi took over the reins at the civil aviation ministry earlier this year, airlines have again sought clarity on the matter. But top officials in the ministry sought to underplay this issue.

“Government policy is different....we are not considering such a proposal at present. But yes, some airlines have approached us for seeking equity investment by foreign airlines,” the official said.

In the past, Mallya had acknowledged that some foreign carriers had approached him for picking up stake in the carrier. Not just Kingfisher, some other domestic airlines are also believed to be pushing for such permission. However, at least one large private carrier is believed to be opposed to any such proposal.

The proposal to allow foreign carriers to invest in Indian was first mooted formally in 2009, when along with myriad suggestions on reducing tax burden on aviation turbine fuel (ATF) and a whole range of other aviation activities, the ministry had quietly inserted this viewpoint in a presentation to be made before the Cabinet secretary.

At that time, the ministry had also suggested that foreign direct investment (FDI) limit of 49% (which was allowed for non-airline foreign companies) be relaxed.

Both these suggestions would help domestic carriers which have very low capital bases and are fraught with an urgent need to improve their financial situation. Pointing out that even for Air India the capital base is very small, ministry officials had then said, “The issue is not about increasing FDI but allowing foreign airlines to come and invest in Indian carriers so that the latter get access to funds”.

Present norms allow only 49% FDI and that too by non-air transport companies. Foreign airlines are barred from investing in Indian carriers in any form.