With Kingfisher and several other airlines landing into dire straits, the Industry Ministry has moved a draft Cabinet note on allowing 26 per cent FDI by foreign airlines in the domestic carriers.

“Private airlines in the country are in dire need of funds for their operations and service upgradation to compete with other global carriers,” the note circulated by the Department of Industrial Policy and Promotion (DIPP) said.

The DIPP in the Industry Ministry has stuck to its guns suggesting FDI cap of 26 per cent and not 24 per cent, as proposed by the Civil Aviation Ministry.

The DIPP feels anything below 26 per cent would not attract strategic investment from the foreign airlines.

Investor with 26 per cent or more holding is considered strategic, as he can have say in the policy decision of a corporate entity under the Indian company laws. An investor with 26 per cent support can block a special resolution in board of directors for policy change.

The note has been circulated among the key ministries including the civil aviation, finance, home and law.

At present, FDI in domestic passenger airlines is allowed up to 49 per cent by overseas entities, other than the foreign airlines. Non-resident Indians can invest 100 per cent.

“Obviously the policy has not worked and it needs changes...” the official said.

Kingfisher reported net loss of Rs 468 crore, Jet Airlines Rs 713 crore and Spicejet Rs 240 crore for the second quarter of the current fiscal under the impact of rising AFT price and weakening rupee.

Most of the private airlines have been seeking policy change for opening the crisis-ridden sector to FDI. Kingfisher Airlines has also approached the government for direct import of jet fuel.

(This article was published on November 22, 2011)
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