New rules governing operation of scheduled airlines which include fixing minimum levels of equity and barring any investment by foreign carriers, have come into effect by becoming part of the civil aviation regulations.
The rules, which were approved a few months ago, were incorporated recently into the 1994 Civil Aviation Requirements (CARs) issued by the Directorate General of Civil Aviation (DGCA), official sources said.
The new rules, to be applicable for new entrants in the sector, require that applicants for the scheduled airline permit, must have a minimum paid up capital of Rs 50 crore and a fleet of five large aircraft, having a take-off mass of over 40,000 kg, when they begin operations.
For each additional aircraft beyond these five, the company should put in additional equity of Rs 20 crore.
Similarly, for those airline firms which plan to fly smaller planes with less than 40,000 kg take-off mass, should have a minimum fleet of five and an equity of Rs 20 crore. It should add Rs 10 crore to its equity for each addition in its fleet of small aircraft, the sources said.
In both cases, the airlines may not add to its equity base if it has reached the level of Rs 100 crore.
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While the new rules allow 49 per cent foreign equity and 100 per cent NRI investment through the automatic route, it bars any direct or indirect equity participation by foreign carriers.
The rules specifically state that "equity from foreign airlines would not be allowed, directly or indirectly, in domestic air transport services".
They make it clear that foreign institutional investors, who wish to invest in the domestic air services sector, "shall not be a subsidiary of a foreign airline".
However, the fresh rules permit import of aircraft on dry or wet lease from foreign airlines, subject to the government and the DGCA guidelines. They also allow the operator to outsource maintenance of aircraft to other DGCA approved organisations.
While prohibiting any management contract of a domestic scheduled airline with a foreign carrier, the rules permit marketing arrangements with them, like ground handling, general sales, code sharing and interlining.