Tuesday, January 17, 2012

Will foreign airlines be allowed to own upto 49% of Indian carriers?

In an attempt to bail out bleeding airlines, the government is considering whether to allow foreign airlines to own upto 49 per cent of Indian carriers.


Currently, foreign investors can own upto 49 per cent stake in Indian airlines, but only if they are not in the airline business abroad. What the government is now considering would allow an airline like Virgin, for example, to own upto 49 per cent in a local carrier like Kingfisher - an earlier proposal suggested a cap on FDI at 26 per cent for foreign airlines.

After a lengthy meeting with Finance Minister Pranab Mukherjee, the Civil Aviation Minister Ajit Singh shared, "The question was to allow foreign airlines to participate in FDI. I discussed it with the Finance Minister and he has agreed. We will bring out a note for the Cabinet now."

The Commerce Ministry and the Civil Aviation Ministry have been working on this new proposal and today, the relevant Group of Ministers has agreed in principle to this proposal. It will now have to be discussed and reviewed by the cabinet.

Recently, airlines like Kingfisher which are trapped in a cash-crunch and mega-losses have been petitioning for foreign airlines as partners. The Civil Aviation Minister also said it would be upto each airline to decide if they want to allow FDI. Together, India's main carriers are expected to lose close to $3 billion in this financial year.

Meanwhile, just days after nearly 40 pilots of the cash-strapped national carrier Air India went on an agitation over pending incentives, the Civil Aviation Minister has also said the government will be immediately releasing Rs. 150 crore to pay productivity-linked incentives.

Asked by when would the amount be released to Air India, Mr Singh said "we have agreed, the Finance Ministry has agreed. So, it should be released soon. It may not be too long. This is basically money owed to the airline by the government."

Maintaining that this was "just the first part of it" and the total was around Rs. 600 crore, he said several Ministries have to bear the cost of VVIP travel. "Some Ministries have approved it, others have to approve it. I will talk to those Ministers also."

The Civil Aviation Minister also said a Group of Ministers will consider a restructuring plan for the airline. The debt-ridden carrier has outstanding loans and dues worth Rs. 67,520 crore, of which Rs. 21,200 is working capital loan, Rs. 22,000 crore is long-term loan on fleet acquisition, Rs. 4,600 is vendor dues and an accumulated loss of Rs. 20,320 crore, according to official figures.