While the government may have opened the civil aviation sector to a wide range of investment earlier this year, the sheer strictness of the regulations, governing the eligibility of a foreign investor in the sector, may deter investors from pumping in funds into the sectors, which has seen one of its lowest periods recently.
For non-scheduled airlines, chartered airlines, and cargo airlines, though FDI of up to 74% and investment by non-resident Indians (NRI) up to 100% is allowed, majority of the board of directors have to be Indian citizens. Moreover, if the chairman, MD, CEO or CFO are foreign nationals, they have to get security clearance from the home ministry.
The government through the civil aviation ministry has already received a lot of flak for not allowing foreign carriers to invest in the country’s aviation sector, with many saying who else would want to invest in the sector. Civil aviation minister Praful Patel justified this by saying that only when the country’s carriers were strong enough to face the powerful foreign carriers would investment in the sector be opened for them. Analysts have countered this by saying that how would the country’s air carriers become strong enough to face international competition without any international experience and money.
The norms leave only foreign private equity and investors to lend a helping hand to the struggling carriers. But even they cannot have foreign airline companies as shareholders. If that is not enough then the foreign investor has to give a declaration that no foreign airline is in financial or commercial tie-up with it or has any management or ownership interest in the investor. Its worth noting that, since the government has opened up foreign investments in the sector, no significant investment has come into any of the carriers. Besides, carriers have been postponing their overseas debt raising plans as well fearing that it would come in the way of foreign investment regulations.
The foreign financial institution or entity, which seeks to make investment in the country’s scheduled air transport service, cannot be a subsidiary of a foreign airline. But the air transport operators are allowed to import aircraft on dry lease, maintenance and repair work, training, marketing arrangements like ground handling, general sales agency, code sharing and interlining with foreign airlines.
?Wet leasing of an aircraft may also be allowed from any source subject to the fulfillment of the guidelines issued by the Government and the Directorate General of Civil Aviation (DGCA),? the FDI regulations said.
The government has gone all out to make sure that foreign airlines don’t have any say in the workings of Indian carriers. According to the regulations, no carriers in the country can even enter into an agreement with a foreign airline where the latter may get the right to interfere in the management of the domestic operator.
Foreign airlines are, however, allowed to participate in the equity of companies operating cargo airlines, helicopter and seaplanes services, the latter two of which make up a very small or non-existent market market in India.
As far as MROs and pilot training academies, the foreign company planning to set up a maintenance and repair organizations (MRO), flying training institute or a technical training institute has the option of being as an incorporated entity ? by incorporating a company under the Companies Act, 1956 through either a joint venture or wholly owned subsidiary. Foreign equity in the Indian company can be upto 100% depending on the requirements of the investor. Passengers carried by Indian domestic airlines have plummeted 17% to 35.06 lakh in June 2008 from 41.16 lakh a month back, mainly hit by carriers reducing capacity and increased airfares driving passengers to other modes of transport.
This is the first time, the number of passengers carried by Indian carriers have fallen. After the country?s aviation sector took off, helped by a friendly policy regime and low fares, the sector grew 27 % on an average every year. According to the figures released by the Directorate General of Civil Aviation (DGCA), compared to June last.