FDI in aviation: How Vistara, Air Asia India, Jet are affected

By: and |
New Delhi | Updated: July 06, 2016 7:00 AM

The clarification came after the department of industrial policy and promotion (DIPP) notified the changes in FDI policy in the sector

The government has clarified that the notification related to foreign direct investment (FDI) in aviation doesn’t impose restriction of management control with Indians in airlines where majority stake is vested with a foreign entity.The government has clarified that the notification related to foreign direct investment (FDI) in aviation doesn’t impose restriction of management control with Indians in airlines where majority stake is vested with a foreign entity.

The government has clarified that the notification related to foreign direct investment (FDI) in aviation doesn’t impose restriction of management control with Indians in airlines where majority stake is vested with a foreign entity.

However, existing airlines like Vistara, AirAsia India, Jet-Etihad and any future carriers with majority stake held by Indian entities will have to ensure that the substantial ownership and effective control (SOEC) rests with Indian nationals.

The clarification from the civil aviation ministry came after the department of industrial policy and promotion (DIPP) notified the changes in FDI policy in the sector, but maintained that no other changes in conditions had been made.

This meant that despite a foreign entity holding 100% stake in an airline, it would have to ensure that SOEC rested with Indian nationals.

However, speaking to FE, RN Choubey put the record straight, saying: “Foreign airlines will not control domestic airlines in case the majority is owned by domestic player.” He added that in case a foreign entity owns a majority stake in an airline, it will not be required to abide by ownership and control structure that requires it to be vested with Indian citizens.

According to DIPP notification, an airline that has up to 49% stake held by a foreign airline must be registered and have its principal place of business within India.

It is also mandatory for such an airline to have the chairman and at least two-thirds of the directors as citizens of India and the substantial ownership and effective control is vested in Indian nationals.

Despite the clarification, the SOEC issue could pose problems for a new entrant to the sector with foreign ownership as most of the air service agreements (ASA) signed between countries have a clause that explicitly defines the airlines to have SOEC vested with citizens of the respective countries.

These ASAs are based on International Civil Aviation Organization (ICAO) template and even though they are not binding, most countries include it in their bilateral rights agreements.

“We would look into the possibility of including a foreign-owned airline into the ambit of ASAs, preferably without violating International Civil Aviation Organization (ICAO) regulations. If that’s not possible, we will explore other option on case-by-case basis,” Choubey had said last week.

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