Cap on foreigners on airline boards

Foreign airlines cannot invest in India

Foreign investors in domestic airlines will not be allowed to hold more than a third of the board positions, as per the guidelines for foreign investment in the domestic airlines prepared by the civil aviation ministry. The norms say the remaining members and the chairman of the board of airline firms will have to be Indian citizens.

The government has allowed foreign equity participation of up to 40 per cent and investment by non-resident Indians and overseas corporate bodies (OCBs) up to 100 per cent in domestic air transport services. Investments by foreign airlines are, however, not allowed in an Indian company.

As a safeguard against proxy control by a foreign airline, financial institutions with stakes in airlines will not be allowed to make investments in a domestic airline company.

The guidelines also call for substantial ownership and effective control of the joint venture company to be vested with Indian nationals.

"This can be done either at the joint venture agreement or as a part of the articles of association of the company," a civil aviation ministry official said.

To ensure that the control of the company remains with the Indian partner, the guidelines also stipulate that the domestic company should have agreements with the foreign partner so that the effective control of the management of the company stays with the Indian company.

"A domestic air transport operator shall not enter into an agreement with a foreign airline, which may give the airline the right to interfere in the management of the domestic operator," the guidelines say.

While guidelines permit a domestic air transport operator to enter into financial arrangements with foreign banks or financial institutions for the purpose of lease finance, hire-purchase or other loan arrangements, such an arrangement will not be permitted with a foreign airline.

The domestic airline will be allowed to employ foreign pilots and engineers only till the time the company is able to train its own manpower.

Apart from this, management contract with a foreign airline shall also not be permitted, while marketing arrangements such as ground handling, general sales agency, code sharing and interlining will be permitted.

However, the policy permits airline operators to import aircraft on dry lease from foreign airlines.

"Wet leasing of an aircraft may also be allowed from any source, subject to the fulfillment of the guidelines issued by the government or the Director General Civil Aviation (DGCA)," the norms say.

Naresh Chandra's action plan

• Privatisation of IA, A-I and Pawan Hans
• Allow upto 49% FDI in domestic airlines
• Liberalisation of international air transport
• Limit government interference in IA & A-I.
• Set up airport regulator
• Private placement o f IA & A-I equity with domestic FIs
• Fleet acquisition of IA & AI
• Encourage regional air services