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Amidst differences within the industry, the Finance Ministry has lent its support to the Department of Industrial Policy and Promotions (DIPP) on allowing foreign airlines to pick up up to 26 per cent equity in domestic airlines.
Once various ministries give their views, this proposal will be sent to the Cabinet for final decision.
“We have agreed to the proposal of DIPP for allowing 26 per cent FDI by foreign airlines in domestic carriers,” a senior Finance Ministry official told Business Line . On the other hand, the Civil Aviation Ministry still maintains its position of restricting the cap to 24 per cent.
The 26 per cent limit is considered to be a better option for any foreign investor as it allows veto rights in board decisions. The 24 per cent limit makes an investor an ordinary shareholder without veto powers on the board of the airline.
At present, barring foreign airlines (direct or indirect), foreign investors can invest up to 49 per cent in any scheduled domestic airlines. Scheduled domestic airlines is defined as a carrier which operates with a minimum of five aircraft and operates a fixed schedule.
Earlier, it was argued that foreign airlines, with stronger balance sheets, can easily outshine Indian partners. Security concerns were also raised, especially regarding foreign airlines belonging to the Gulf and African regions.
“But the problem is, if you do not allow foreign airlines, then why would a non-airline entity invest in an airline? Now with the pressing needs, it was thought to change the norms,” another senior Government official said.
The development comes at a time when the entire Opposition and even some allies of the Government have taken a tough stand against another recent Cabinet decision – that of allowing FDI in multi-brand retail trade. But Government officials are optimistic that this will not be the case for aviation sector.
Domestic scheduled carriers are facing hard times and are in dire need of capital. All the three listed domestic carriers – Jet Airways, Kingfisher and SpiceJet – posted losses in the second quarter ending September 30.
Market leader Jet Airways is opposing FDI by foreign airlines in domestic carriers, while Kingfisher is lobbying hard for the move. Even low cost leader Indigo is believed not to be in favour of the move.
On the other hand, five international carriers Emirates, Etihad, Lufthansa, Singapore and Air Asia are keeping a close watch on the development. All have a strong interest in the Indian market.
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