Govt set to defer nod for FDI in airline companies

The wait for foreign direct investment (FDI) in the domestic aviation sector may get longer.

The policy on the amount of stake foreign airlines can own in these companies was expected to be cleared by the Cabinet on Thursday.

A source in the commerce ministry, however, suggested it would be delayed.

“Cabinet note on the policy has been circulated to various ministries for comments, but it could take some more time as the consultation process has yet been completed,” said the source.

Another source said the issue will not be taken up by the Cabinet Committee on Economic Affairs because a fresh round of consultation has been initiated, though the matter will be taken up on a priority basis and sorted out in the next 10 days.

The government has conveyed its urgency in the matter as it is keen to ensure that a couple of private airlines who are already in a distressed state do not sink.

The commerce ministry on Tuesday circulated a Cabinet note seeking comments from other ministries to permit 49% FDI in the sector.

The Cabinet note is expected to be cleared by the ministries concerned on an urgent basis before it is finally sent to the Cabinet secretariat.

The government expects the proposal to go through as the finance and civil aviation ministries have already given their nod for the same.

Meanwhile, aviation experts and analysts are hailing the government move to open up the sector.

Ankur Bhatia, managing director of airline ticket reservation system Amadeus, said it will help bridge the gap between demand and supply and pull down air travel costs. “Today, only 35 million people are flying, while there is a potential of 300 million people taking to the sky. Even though many can afford to fly, they are not doing so because regional connectivity is poor. Once the foreign carriers are allowed to invest into the domestic sector, the supply situation should improve.”

According to Bhatia, many cash-rich Gulf and European carriers may queue up to invest into the sector once the policy gets the green signal.

He, however, does not believe they would be keen to invest in existing operators. “I believe there are many foreign airlines that are interested, but I don’t think they would be interested in taking the debts of the existing airlines. There may not be many contenders for that.”

The industry, consisting of six airlines, is buried under a staggering debt of over Rs80,000 crore and collective losses of more than Rs40,000 crore. Such fundamentals may prove to be an inhibiting factor for those interested investing into the sector. 

Another aviation expert, who did not want to be named, said a stake in domestic airlines would also help foreign carriers get more traffic out of India.