The Foreign Investment Promotion Board (FIPB) has given in-principle approval to the Malaysian low-cost airline AirAsia’s proposal to set up a domestic airline in India.

Yet, there was some haziness on whether the policy to allow foreign airlines to invest in a domestic company meant only investments in an existing airline or if it was applicable to a new company that did not have an operational airline.

The Civil Aviation Ministry has sought clarifications on this issue.

But Minister Ajit Singh did not see major hurdles to the airline proposal.

Press Note 6

The issue is Press Note 6 of 2012, which allows a foreign airline to invest up to 49 per cent of the paid-up capital of Indian companies operating scheduled and non-scheduled transport services. The Ministry’s contention is that if Press Note 6 is the basis, then AirAsia’s proposal cannot be accepted as neither the Tatas nor Telestra Tradeplace Pvt. Ltd, AirAsia’s partners in the India venture, runs an airline.

But according to sources in the Ministry, “the clarifications (on Press Note 6) should come in the next day or two”.

So, as of now, there is no direct reply to the question whether AirAsia and its partners can start the process of setting up a company and applying to the Directorate-General of Civil Aviation to start an airline.

The new joint venture company will have to formally approach the DGCA, seeking a licence and clearance for the airline project before it can take to the skies.

But AirAsia’s promoter, Tony Fernandes, has said the airline is expected to start operations with two-three Airbus A-320 aircraft in the fourth quarter. The initial investment in the project is expected to be $30-50 million.

AirAsia will most likely have a 49 per cent share, with the Tatas taking 30 per cent stake, and Arun Bhatia of Telestra Tradeplace Pvt. Ltd holding the rest.

Jet-Etihad deal

Interestingly, if the current thinking in the Civil Aviation Ministry prevails, Jet Airways’ stake sale to Gulf-based Etihad should not face any problem when it comes to the FIPB for clearance as Jet already operates an airline in India.

The two airlines are in talks, with Etihad wanting to acquire a stake in Jet.

Since the Government changed the aviation FDI policy, Jet Airways is the only Indian carrier that has indicated it has initiated talks with a foreign airline.

(This article was published on March 6, 2013)
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