Finmin may back DIPP proposal on airline FDI

The finance ministry is likely to support the proposal from the industry department for allowing foreign carriers to buy up to 26% equity stake in Indian airlines. The ministry?s inclination to endorse the move, also backed by the civil aviation ministry, was confirmed to FE by senior officials.

The development is significant since two of the top private carriers ? Jet Airways and IndiGo ? have opposed the move arguing domestic airlines are financially weak compared to foreign carriers and hence it could trigger hostile take-over of Indian companies.

Vijay Mallya-promoted Kingfisher Airlines has been lobbying hard with the government for relaxing the foreign direct investment (FDI) hoping it would help them access funds from foreign airlines like British Airways.

?Opening up the sector will be beneficial as more competition needs to be encouraged and will improve efficiency. Also, foreign investment will help the domestic players in these tough days ? a top finance ministry official said.

The Department of Industrial Policy and Promotion (DIPP) has circulated a note to the Cabinet for eliciting their views on relaxing norms for foreign airlines to invest in Indian carriers. It has proposed to allow foreign airlines to pick up to 26% in Indian airlines within the existing cap of 49% for foreign investors.

?The government should allow foreign airlines to invest upto 49%. If not then even 24% is a good beginning,? Centre for Asia pacific Aviation (CAPA) India head Kapil Kaul said.

The existing guidelines permit FDI up to 49% in scheduled Indian airlines. Foreign airlines are, however, not allowed to invest either directly or indirectly in Indian carriers.

The DIPP has floated the proposal at a time when most of the local carriers are bleeding and struggling to survive. While auditors of Kingfisher Airlines had earlier said that the airline promoter needed to raise funds to continue, top private airline Jet Airways has also been alerted for raising fresh capital.

The three BSE-listed airlines ? Jet, SpiceJet and Kingfisher ? have posted a combined loss of R1,422 crore in the quarter ended September 30. Aviation consultancy firm CAPA has forecast a net loss of $2.5-3 billion for Indian carriers in the current financial year.

?It?s not the best time for allowing foreign airlines to invest in Indian carriers but it?s something which needs to be done,? PwC executive director Dhiraj Mathur said.