Liquor baron Vijay Mallya, promoter of Kingfisher Airlines, has put in a formal request to the civil aviation ministry to permit foreign carriers to invest directly in his airline and other domestic carriers. Mallya has said the government should allow foreign carriers up to 25 per cent equity in domestic airline companies.
This is the first time an airline has made such a request to the ministry after the Tata-Singapore Airlines deal fell through in 2001 (Singapore Airlines was to have a 49 per cent share in the joint venture).
The Indian government does not allow direct or indirect investments in domestic airlines, a move that was meant to protect domestic carriers. Mallya’s request marks a sharp change from domestic players’ stand.
In an exclusive interview to Business Standard, Mallya said, “If foreign companies are allowed to invest directly in other Indian sectors, why should civil aviation not be opened up for such investments? I have requested the government to consider this policy change and allow foreign carriers to have a strategic investment in airlines here.”
Investments by foreign carriers would be a boon to domestic players, Mallya said. “All airlines, whether it is Jet Airways, Air India or Kingfisher Airlines, will benefit from such a move. The government should let it happen now,” he added.
Mallya’s call for allowing foreign investment in airlines comes as the domestic aviation industry faces a serious financial crisis owing to high fuel prices and an economic slowdown. The industry is projected to lose over $1.5 billion this year. Mallya’s own airline made losses of about Rs 1,000 crore in the last fiscal.
Mallya, however, clarified that allowing foreign investment does not imply the unfettered entry of foreign carriers. “In India we do not have dual classes of shares with voting and non-voting rights as in the US. Shareholders that have, say, 40 per cent ownership in an airline there get 25 per cent of the voting rights. What I am saying is that the government should allow at least 25 per cent direct investment by a foreign carrier here.”
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Mallya dismissed recent moves by the ministry to allow foreign airlines to have franchise agreements with domestic carriers, saying he would strongly oppose any such move.
The civil aviation ministry is studying a proposal from British Airways for a franchise agreement with an Indian carrier.
Mark Martin, aviation analyst with KPMG, said India is the only country where the foreign institutional investors are allowed to invest in aviation with a foreign direct investment cap of 49 per cent but a foreign airline cannot invest, directly or indirectly.