Foreign airlines may get to invest 24%

Kingfisher can breathe easy. The Cabinet is set to examine a proposal to allow foreign airlines to pick up equity in Indian carriers.

As of now, airlines are allowed to take in 49% foreign direct investment (FDI), but any investment by foreign carriers is banned.
An official source said the Ministry of Civil Aviation has mooted a 24% cap on investments by foreign airlines, whereas the Department of Industrial Policy and Promotion is pushing for 26%.

“The civil aviation ministry has proposed 24% investment by foreign airlines. The Cabinet is likely to take a call on the issue in a couple of weeks,” the source said. “Whatever decision the government takes, everyone will have to accept.”

A 26% cap would allow a foreign investor to have voting rights on the board of the Indian airline.

The proposal, if cleared, could help Kingfisher Airlines raise much needed cash. Indeed, it is the possibility of Kingfisher actually failing that has pushed the FDI issue to the fore. Barring IndiGo, all domestic airlines have been incurring losses due to high jet fuel prices, a depreciating rupee and fierce competition.

Some, like Kingfisher, which reported grim quarterly results and an erosion of networth in the quarter ended September, have been asking the government to change the rules to allow investment by foreign carriers.

SpiceJet CEO Neil Mills said he has written to the government in favour of the proposal.

Others, including Jet Airways, which was opposed to any such move till recently, are coming around. During a conference call with analysts last week, Sudheer Raghavan, Jet’s chief commercial officer, said his airline is now “neutral” to any such move.

According to the Centre for Asia Pacific Aviation, Indian carriers will post combined losses of over $2.5 billion this fiscal.