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The announcements for the civil aviation sector made in the Budget not only make the government’s intention of divesting its stake in Air India clear but also show it wants to help the domestic aviation industry as a whole.
The Finance Minister said that the government was examining a proposal to hike the foreign direct investment limit in aviation.
This would not only facilitate the divestment of Air India but also help the domestic aviation industry as a foreign partner will be able to pick up a bigger stake in a domestic carrier leading to better valuation of the domestic player. The divestment process of Air India is expected to begin shortly after the airline finalises its accounts for 2018-19.
The government’s keenness to let Air India go can also be seen in a reply that Hardeep Puri, Minister of Civil Aviation, gave Parliament recently.
Funds infused
The Minister said between 2014-15 and 2018-19 the government had infused over ₹17,000 crore into the state-run airline, including infusing ₹5,780 crore in 2014-15, ₹3,300 crore the following year and ₹3,975 crore in 2018-19. Despite this the airline is still making losses.
The announcements in the Budget could enthuse prospective buyers for the Maharaja as 49 per cent limit on FDI has been a stumbling block for foreign companies investing here.
SVasudevan, Partner, KPMG India, lists FDI in aviation and disinvestment of Air India as among the stifling issues for India's aviation sector. Akash Gupt, Partner and leader Regulatory, PwC India, points out that since the current policy on civil aviation restricts foreign airlines to 49 per cent equity ownership “the headroom becomes much smaller if a company has other forms of foreign investments (FDI or FPI), since the limit is counted on a cumulative basis. A relaxation on both or either of these conditions will provide the much needed boost to the debt-laden sector.”
An industry watcher, with over four decades of experience in airline finance, felt that the proposed relaxation of FDI will bring in necessary investments and lead to healthy competition, “however, the Substantial Ownership and Effective Control clause should be protected.”
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