The Department of Industrial Policy and Promotion (DIPP) has decided to go ahead with its proposal to allow foreign airlines to invest up to 26% in domestic carriers even as the nodal civil aviation ministry is yet to give its view on the issue. The move comes at a time when most of the home-grown airlines such as Kingfisher are bleeding with losses for the current financial year estimated to be in the range of $2.5-3 billion.
A DIPP official said that his department had drafted a Cabinet note proposing foreign airlines to pick up stake in domestic carriers up to 26%.
He, however, added that since the civil aviation ministry is opposing the move citing protection of the Indian players and their rights inthe company, DIPP in the note has clarified its rationale for such a move saying, ?We have proposed a cap which will not allow the foreign entity to block any company regulations or decisions.?
Asked if the aviation ministry in favour of opening the sector for foreign airlines, civil aviation minister Vayalar Ravi told FE that it was a million-dollar question. ?Once we take a decision on the issue we would announce it,? he said.
The aviation ministry then headed by Praful Patel had in 2007 sent a note to the DIPP proposing to allow foreign airlines to buy up to 25% equity shares in the domestic airline but later put the issue on the backburner in the face of strong resistance by airlines like Jet Airways. Official sources said Vijay Mallya-promoted Kingfisher and Wadias-owned GoAir had strongly lobbied for relaxing the FDI guidelines but bigger carriers Jet Airways and Air India did not favour such a move.
However, the DIPP’s move towards open the sector for foreign airlines will hit a wall if the aviation ministry sticks to its stand of not allowing such a move. In a communication to the aviation ministry the DIPP in last February had written that since FDI policy is generally structured along the caps of 24%, 26%, 49%, 74% and 100% depending upon the level of rights proposed to be made available to foreign investors and with a view to ensure adequate clarity about the ability of resident shareholders to pass special resolutions under the Companies Act 1956 this department has proposed that foreign airlines may be allowed entry in scheduled, non-scheduled and chartered airlines with FDI up to 24% instead of 25% under the FIPB (Foreign Investment Promotion Board) route.
Official sources said that any decision on this would be taken keeping Air India in mind as has been the case in the past.
It?s generally feared that the move to allow domestic private carriers to get capital from foreign airlines would put the national carrier to competitive disadvantage. The government has made it clear that it would support Air India financially and would not sell or disinvest in the carrier to revive it.
The existing policy allows foreign companies to invest up to 49% in the Indian carriers. It, however bars foreign airlines to invest directly or indirectly in domestic airline companies. Many countries like the US allow up to 25% equity participation while restricting them to have voting rights or control in the domestic airline companies. Some countries like Australia permit up to 49% investment by foreign airlines in their domestic carriers.
?India is the only country which distinguishes the FII (foreign institutional investment) and FDI capital. This is not logical. The foreign airline investment should be permitted up to 49%, on a par with the FII investment. While at the same time government should ensure that voting right and ownership control stay with Indian nationals,? Centre for Asia Pacific Aviation (CAPA) India head Kapil Kaul said.
Kaul said that some airlines may not like capital infusion by foreign airlines but it does not mean that they should oppose the move to relax the FDI rule.
?If the government decides to allow foreign airlines to invest the airlines opposed to the policy would not be under any compulsion to receive capital from overseas carriers,? he said.