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In a major relief to debt-laden airlines such as Kingfisher, the Civil Aviation Ministry has announced a “broad consensus” in the Government on allowing foreign airlines to pick up equity of up to 49 per cent in domestic scheduled airlines. The Cabinet will take a final call on the issue.
Existing rules allow foreign investors, but not foreign airlines, to acquire up to 49 per cent equity in scheduled domestic airlines. It is now proposed that this distinction be done away with. Share prices of all the three listed airline companies took off.
It also indicated that the Government is not averse to allowing foreign airlines pick up equity in Air India. It decided to immediately release Rs 150 crore to help the cash-strapped national carrier pay salaries and staff arrears.
The Civil Aviation Minister, Mr Ajit Singh, said: “The Civil Aviation Ministry will prepare a Cabinet note for allowing foreign airlines to take 49 per cent stake in Indian carriers.” He was talking to reporters after a meeting with the Finance Minister, Mr Pranab Mukherjee. Although he refused to give any time-frame for the Cabinet process, he said it will be done “as soon as possible.” The Department of Industrial Policy and Promotions (DIPP) has put up a draft note for inter-ministerial consultation on FDI by foreign airlines.
Though the DIPP note talks about only 26 per cent FDI, “a Committee of Secretaries has favoured higher FDI and we will work accordingly,” Mr Singh said.
The Chairman of UK-based carrier Virgin Atlantic, Sir Richard Branson, has already indicated his intention to invest in Indian carriers.
Analysts say airlines such as Emirates and Singapore are also keenly watching the developments.
A top executive with a foreign airline indicated that all the major foreign airlines would be interested in picking up stake in Indian carriers. This is because the Indian market is growing at a very high rate. During the first 11 months of 2011, domestic passenger traffic grew by over 17 per cent.
Indian carriers are divided over the move. While Kingfisher is believed to be in favour of such a move, Jet Airways is said to be against it on the grounds that with mounting losses, a foreign airline will be able to acquire a domestic airline cheap.
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