The Centre has decided to allow 100 per cent FDI in domestic airlines, but the catch is that foreign airlines can hold only up to 49 per cent in such ventures (the balance can be held by a foreign body that is not an airline).
While foreign investment up to 49 per cent will be under the automatic route, beyond it would require government approval.
The Centre also decided to allow 100 per cent FDI under the automatic route for brownfield airport projects. Earlier, under the automatic route, 100 per cent FDI was permitted in greenfield projects and 74 per cent in brownfield projects.
“It has now been decided to raise this limit to 100 per cent, with FDI up to 49 per cent permitted under automatic route and FDI beyond 49 per cent through government approval.
“However, foreign airlines would continue to be allowed to invest in the capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49 per cent of their paid-up capital and subject to the laid down conditions in the existing policy,” an official statement said.
Today’s decision means the likes of Emirates and Qatar Airways can tie up with sovereign, private equity or hedge funds to own and operate airlines in India — the airline can hold 49 per cent and the fund, 51 per cent. Earlier, the FDI both from airlines and foreign portfolio investors was restricted to 49 per cent.
The existing conditions to get a licence to operate an airline in India will remain and will be vetted by the Directorate General of Civil Aviation.
“Though equity holding of foreign airlines is still limited to 49 per cent, a foreign airline can join hands with its sovereign fund or private investors and set up a 100 per cent foreign owned airline in India.
“It will be free to use the bilateral quota from the Indian side. We hope the 49 per cent restriction on ownership by a foreign airline may also get abolished in due course,” said Amber Dubey, Partner and India Head of Aerospace and Defence at KPMG.
Existing airlines can also gain greater access to capital from foreign funds.
The foreign portfolio holding in Jet Airways is 4.61 per cent, SpiceJet, 3.03 per cent, and IndiGo, 6.1 per cent. At AirAsia India and Vistara, foreign airlines already own 49 per cent; therefore additional investment can come only through foreign funds.
Focus on customers“The avoidable controversies on settling ‘ownership and control’ issues are now over. Foreign airlines can now focus on the customers and competition rather than wasting time on legal and regulatory issues.
“The likely increase in competition will bring down prices and enhance air penetration in India — both international and domestic,” Dubey added.