The Hindu Business Line : Equity hike for national airlines likely

New Delhi, Aug. 25 The Government plans to increase the equity norms for the setting up of a national airline from Rs 100 crore at present to Rs 115-120 crore, official sources told Business Line.

While neither the exact quantum nor the timing of the decision has been firmed up yet, the Government’s thinking is that national airlines in the country are generally under-capitalised and need to be in better financial position to face competition.

Corrective step

In March this year, the Government took the first corrective step by changing the norms for the setting up of a national airline.

The rules now stipulate that a national airline promoter must pump in a minimum paid-up capital of Rs 50 crore if the five aircraft being operated are over 40,000 kg, and Rs 20 crore otherwise.

In addition, the promoters would be required to infuse additional equity of Rs 20 crore for every five aircraft inducted.

Similarly, those setting up regional airlines with three small aircraft would need a paid-up capital of Rs 12 crore.

The promoters would be required to pump in Rs 4 crore into the paid-up capital for each additional aircraft subject to a maximum of Rs 20 crore.

Regional airlines operating with larger aircraft would also need to have a paid-up capital of Rs 30 crore.

For every additional aircraft inducted they would be required to pump in Rs 10 crore into the paid-up capital, subject to a maximum of Rs 50 crore.

Beneficial move

The Government feels the latest move would benefit the airlines as they would be in a better position to leverage funds that are required in a capital intensive industry. “The Government is interested in ensuring that people with deep pockets enter the sector.

“The Government would not benefit from the move as the licence fee for setting up a national airline has not been touched. The proposed increase would help the airlines as they would be able to leverage more funds from an expanded equity base,” said a Government official.

The Government has been receiving a number of applications from entrepreneurs keen to enter the sector and it wants to ensure not only the entry of serious players but also the maintenance of safety and security.

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