Govt in no hurry to clear airline FDI

The government seems to be in no hurry to bring in foreign carriers as stakeholders in Indian airlines.  According to sources, the ministry of commerce and industry  is not keen to push for this clause, despite the ministry of civil  aviation having recommended up to 25% stake acquisition by foreign carriers.

Sources said the previous commerce minister was keen on the issue, but “the present one does not seem to favour any foreign airlines picking up stake in Indian ones… this proposal is on cold storage for now.” Under the earlier dispensation, the commerce ministry was said to have been favouring a 49% cap on foreign airlines investing in Indian ones.

In a draft press note released  on Thursday, the commerce ministry indicated its reluctance on the issue. “No foreign airlines would be allowed to participate directly or indirectly in the equity of an Air Transport Undertaking engaged  in operating Scheduled, Non-Scheduled, and Chartered airlines”, though they are allowed to take  equity in companies operating  cargo airlines, helicopter and seaplane services. This draft would be reviewed in September 2010,  so no change in regulations is likely till then.

The proposal on foreign airlines was first mooted two years back, when, along with myriad suggestions on reducing the tax burden  on aviation turbine fuel and a
range of other aviation activities, the civil aviation ministry had  inserted the proposal in a presen-tation to be made before the cabinet secretary.

At that time, the ministry had also suggested that foreign direct investment (FDI) limit of 49% (which is at present allowed for non-airline foreign companies) be relaxed too. It isn’t clear whether any relaxation in the overall 49% FDI limit is also being considered at present.

Thursday’s draft press note said that FDI up to 49% and investment by NRIs up to 100% is allowed on the automatic route for air transport services.  Interestingly, the push for a discussion on FDI in airlines comes just when Jet Airways’ proposal to raise $400 million by issuing fresh shares to domestic and foreign institutional investors (which was okayed on Thursday) could breach the 49% FDI cap.

Indian carriers are also believed to be pushing to let foreign carrier take stakes, citing their precarious financial health and how such a move would bring in much-needed cash. However, at least one large private carrier is believed to be opposed to any such proposal.

Civil aviation ministry officials had earlier 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”, pointing out that even Air India, the national carrier, had a capital base of a mere Rs 150 crore.