Don’t want foreign airlines to have majority stake in Indian carriers: Govt

By: and |
Updated: June 23, 2016 3:50 PM

The government’s intention in raising the FDI limit in scheduled domestic airlines to 100% via the approval route was not to let foreign airlines acquire Indian carriers, a senior official said on Wednesday.

For instance, if Qatar Airways acquires a maximum possible stake of 49% in Spicejet and wants to partner with another foreign entity for the balance 51% stake, the government will conduct due diligence to ensure the latter is at arm’s length from Qatar Airways before being allowed to pick up a majority stake. (PTI)For instance, if Qatar Airways acquires a maximum possible stake of 49% in Spicejet and wants to partner with another foreign entity for the balance 51% stake, the government will conduct due diligence to ensure the latter is at arm’s length from Qatar Airways before being allowed to pick up a majority stake. (PTI)

The government’s intention in raising the FDI limit in scheduled domestic airlines to 100% via the approval route was not to let foreign airlines acquire Indian carriers, a senior official said on Wednesday. But the government may not issue a clarification in this regard despite many analysts finding an ambiguity in the latest policy announcement.

“The intention is to attract foreign funds for the sector. For the time being, we don’t want foreign airlines to have majority stake in domestic carriers. We have taken a calibrated approach to liberalise the sector.” civil aviation secretary Rajeev Nayan Choubey said. He added that if the government’s future experience suggests that foreign airlines be allowed to own domestic carriers, the current cap on their equity (49%) might be done away with.

Also read | 100% FDI in aviation: Norms eased by Modi government; aviation experts cheer!

After the recent changes in FDI policy — which allowed 100% FDI in the sector and retained the cap for FDI by foreign airlines at 49%, analysts felt that an opportunity was created for foreign carriers to acquire their Indian counterparts.

For instance, if Qatar Airways acquires a maximum possible stake of 49% in Spicejet and wants to partner with another foreign entity for the balance 51% stake, the government will conduct due diligence to ensure the latter is at arm’s length from Qatar Airways before being allowed to pick up a majority stake. Also, if a foreign investor wants to wholly own a domestic scheduled airline, its associations with foreign airline companies will be ascertained.

“The government, through an inter-ministerial committee, will examine the proposal of any foreign investor wanting to acquire more than 49% stake in a domestic carrier. Several factors would determine the government’s approval, including whether the entity indeed has an arm’s length distance from the foreign airline,” Choubey said.

He added that the proposals would be decided upon on a case-to-case basis, but declined to provide a clear mechanism for such decisions.

Additionally, on the question of airlines’ eligibility for plying on regional connectivity routes (RCS), Choubey said the carrier with scheduled operator permit granted by the regulator will be allowed to operate. He added that airline operations under RCS will not be restricted to only one-hour journey and that the price mechanism will be fixed based on distance and time of the route on a pro-rata basis, which will be extrapolated from `2,500/passenger/hour.

A source in the ministry of civil aviation told FE that the detailed policy is being finalised in collaboration with Delloitte and will be released by the ministry in a week or so. The source confirmed that the ministry will provide for easy entry and exit to the various scheduled operators interested ensuring maximum participation. In order to make the scheme a success, the ministry of civil aviation has provided for viability gap funding (VGF) as well various tax sops in the form of zero airport charges, reduced excise duty on aviation turbine fuel (2%), reduced service tax on tickets as well as power, water and other utilities at concessional rates.

Even though the success of the scheme lies heavily on the compliance of state governments towards providing various tax sops, officials at the ministry of civil aviation said the state governments will be lured by the revenue generating potential of the scheme.

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