A long-standing roadblock for Indian airlines seeking capital from foreign carriers may be removed soon. The civil aviation ministry, long opposed to foreign airlines picking up stakes in domestic airlines on security grounds, is understood to be favourably inclined to change its stance.
What has prompted a rethink at the ministry was a strong case made by the department of industrial policy and promotion (DIPP). Given the crisis at many domestic carriers and the operational efficiency and connectivity improvement that foreign airlines can bring, the bar on FDI by them could be removed, the DIPP noted in a recent letter to the aviation ministry.
The development comes even as most domestic airlines including the Naresh Goyal-controlled Jet Airways are losing money and desperately need cash. Combined airline debt stands at around R60,000 crore, with accumulated losses around R30,000 crore.
Domestic airlines are, however, divided over the suggestion. While Kingfisher Airlines has been lobbying hard for relaxing rules, others, notably Jet Airways, have raised the red flag.
A top DIPP official told FE that the aviation ministry has ?agreed to consider our request?. ?Indian aviation is in crisis. If it can get equity from foreign airlines, we should not come in the way,? said the official, citing the spirit of the letter.
Currently, India allows up to 49% FDI in domestic airlines through the automatic route while NRIs can invest up to 100%. Foreign airlines are, however, barred from investing in domestic airlines.
A ministry official confirmed that DIPP had suggested liberalising the FDI policy, by allowing equity participation by foreign airlines in domestic carriers.
?They (DIPP) had written to us a few weeks back. The proposal has since been with the minister for consideration,? the official said, on condition of anonymity.
Interestingly, it is not just India which has laws forbidding foreign airlines from picking up stakes in local carriers. Countries including the US and Canada too have similar limits. However, any move to relax the foreign direct investment (FDI) norms would help carriers like Kingfisher Airlines raise funds to expand their fleet and network.
? If we can open sensitive sectors like telecom, defence and airports to FDI, why should airlines be kept out? There is a dire need for funds and global reach for Indian carriers today, with nearly all of them bleeding heavily this year,? Amber Dubey, director (aviation) at local arm of global consultancy firm KPMG said.
In February this year, DIPP had asked the civil aviation ministry to give its views at the earliest on a revised proposal which seeks to allow foreign airlines to invest 24% in domestic carriers.
In 2008, the civil aviation ministry had proposed to allow foreign carriers to hold up to 25% in local carriers within the overall FDI limit of 49%. It, however, later backed out arguing the time was not right for such a move given the nascent stage of Indian airline industry.
? As a principle, in the longer run, it is the correct thing to do (allowing FDI) in a deregulated industry environment. But it is not the right time to take such move,? a top official of a low-cost airline said.