Thursday, November 17, 2011

Ministry proposes 24% FDI in Indian carriers by foreign airlines

New Delhi, November 18, 2011(Tehelkanews)

At a time when domestic airlines are reporting substantial losses, the Civil Aviation Ministry has proposed that the government allow 24 per cent Foreign Direct Investment (FDI) by foreign airlines in Indian carriers.

The Civil Aviation Ministry is preparing a note for the Union Cabinet and it is likely to come up for discussion in the Cabinet over the next few days, sources in the ministry said here on Thursday.

``The Civil Aviation Ministry has proposed 24 per cent investment by foreign airlines. The Cabinet is likely to take a call on the issue in a couple of weeks,'' official sources said.

When asked about the Department of Industrial Policy and Promotion (DIPP) proposing a 26 per cent cap, the sources said the government would take a final call on it. Current rules allow 49% FDI in Indian aviation companies, but do not permit foreign airlines to own stake in India's carriers.

While a majority of Indian airlines are opposed to FDI as they fear that foreign partners would eventually take over the carriers in which they invest, liquor baron Vijay Mallya whose Kingfisher Airlines has sunk into a deep financial crisis has raised the pitch for allowing foreign airlines to invest in India's domestic carriers. A number of banks which have exposure to domestic carriers are also finding it hard to restructure their loans. In such a scenario, FDI could infuse funds in the carriers which they badly need.

Apart from Kingfisher, Jet Airways and Spicejet have also reported losses due to high costs of operation and tax structure. State-owned Air India is also looking for infusion of more funds from the government to bail it out of financial crisis.

The current policy bars foreign airlines from investing in Indian carriers primarily on security grounds. A 26 per cent cap would allow a foreign investor to have voting rights in the board of an Indian carrier which would be not allowed if the cap is fixed at 24 per cent, the sources said.

Meanwhile, the Directorate General of Civil Aviation (DGCA) could allocate slots at airports vacated by Kingfisher Airlines to other airlines over the next few weeks. Kingfisher announced that it would slash about 40 daily flights where the company was making losses following a plan to reconfigure aircraft and cut costs.

The Civil Aviation Ministry has also indicated that over the next few months, an aviation ombudsman will be appointed to help the sector which is in dire financial strait.

\"All stake holders have agreed to setting up an Ombudsman for the sector,\" ministry sources said. The ombudsman's office would also look into complaints by the passengers.

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