M A I N   N E W S

With airlines reporting losses,
Ministry proposes 24% FDI
Cabinet note expected soon; foreign airlines
to pick stakes in Indian carriers
Vibha Sharma
Tribune News Service

Current situation Under the current rules, up to 49% FDI is allowed in aviation companies but foreign airlines are not allowed to invest. The Department of Industrial Policy and Promotion (DIPP) is of the view that the 24% limit will not benefit the sector much as it will not let investors be involved in the functioning of the company FDI — the way out But with banks finding it hard to extend more loans to airlines, there is not much choice and foreign investment could be the way to provide the assistance needed to the high cost-intensive industry. Domestic airlines like Kingfisher, Jet Airways and Spicejet have all reported losses. While Air India has also been unprofitable since the 2007 merger, thanks to the government aid it is offering lower fares even in these difficult conditions much to the chagrin of private players

New Delhi, November 17
The Civil Aviation Ministry has proposed a 24 per cent Foreign Direct Investment (FDI) in Indian carriers as against 26 per cent recommended by the Industry Ministry.

Ministry sources say a Cabinet note on this is expected to be circulated in the next few days and the government may take a final call on allowing foreign airlines to pick up stakes in Indian carriers, one of the main wishes of beleaguered Kingfisher Airlines’ promoter Vijay Mallya, within a “couple of weeks”.

Civil Aviation officials today confirmed that the ministry had agreed to foreign airlines picking up stakes in Indian carriers but was firm on a 24 per cent cap. This, they said, was important keeping in mind interests of smaller airlines and India's strategic position.

Under the current rules, up to 49 per cent FDI is allowed in aviation companies but foreign airlines are not allowed to invest. However, the Department of Industrial Policy and Promotion (DIPP) is of the view that the 24 per cent limit will not benefit the sector much as it will not let investors to be involved in the functioning of the company.

While the DIPP is pushing for at least a 26 per cent limit to offer a better level playing field to investors, the industry is pressing for a much higher limit of up to 49 per cent. A 26 per cent cap would allow a foreign investor to have voting rights in the board of an Indian carrier, which would not be possible with the cap of 24 per cent.

The sources say the Cabinet may consider a higher cap for the FDI if there is a consensus.

Even though the DIPP, as also big players like Mallya, feel that allowing foreign airlines to invest in domestic carriers would help them raise the much- needed equity, it does not find support among many smaller carriers, who feel they will be susceptible to hostile takeovers in difficult financial situation.

But with banks finding it hard to extend more loans to India’s airlines, there is not much choice and foreign investment could be the way to provide the assistance needed to the high cost-intensive industry. Domestic airlines like Kingfisher, Jet Airways and Spicejet have all reported losses due to high costs of operations as low fares and rising fuel prices that have offset surging passenger numbers. While Air India has also been unprofitable since the 2007 merger, thanks to the government aid it is offering lower fares even in these difficult conditions much to the chagrin of private players.

Win-win for passengers

With the DGCA keeping a close watch on airfares, travelling during the coming holiday season may not be an expensive affair.

Even though private airlines are complaining that the national carrier Air India is compounding their financial woes by keeping fares “excessively competitive”, DGCA E.K. Bharatbhushan said his department would keep a close watch on airfares of all airlines. The trouble in Kingfisher, which is causing cancellation of around 40 flights a day, is generating good business for its competitors.