Govt veering towards 26% FDI ceiling in aviation

The government is done with inter-ministerial consultations on allowing foreign airlines to pick up stakes in Indian carriers, crossing even the Sebi takeover hurdle. Top official sources told DNA that the proposal is now ready and there is a broad consensus on capping the investment limit at 26%. “There is also a view that foreign airlines could be allowed to pick up more than 26% stake,” the sources said without elaborating.

To a specific query on whether any foreign airlines had come forward to look for investment opportunities after the FDI cap discussion, the sources added: “Private equity investors and some foreign airlines have been making enquiries. But contrary to the popular belief, not a single airline from the Gulf region has come forward as yet with any such interest.”

One of the concerns voiced by some Cabinet ministers earlier is Indian skies would become the monopoly of Gulf-based carriers like Emirates if these are allowed to invest in loss-making domestic airlines. “Which airlines in the world are cash rich or have the ability to acquire Indian carriers? Qatar Airways, Emirates, Etihad, Lufthansa and Singapore Airlines have the money to invest. But there are major security concerns relating to Gulf-based airlines as well as those from China,” a senior Cabinet minister had said.

Earlier. the finance ministry had backed a proposal by the Department of Industrial Policy and Promotion (DIPP) to allow foreign airlines to acquire up to 26% in domestic carriers within the overall sectoral FDI cap of 49%, provided it did not breach the takeover hurdle. The new takeover code says an open offer is triggered if a company acquires 25% or more of the target company. For instance, if a foreign airline acquires a strategic stake of 26% as proposed by the DIPP, then it will have to make an open offer to buy a total of 51% stake in the target company when sectoral FDI cap in aviation is 49%.

The proposal to allow foreign airlines to invest in domestic carriers gained momentum after the recent crisis at Kingfisher Airlines. But the sources said if foreign airlines do consider investing in Indian carriers, there is little chance of them considering floundering airlines such as Kingfisher or even Air India and they could instead mount a takeover of profitable operators such as IndiGo.