The government is likely to give an indication in two weeks on the extent to which it might allow foreign airlines to pick up stake in Indian carriers. The department of industrial policy and promotion (Dipp) will float a paper for inter-ministerial consultation, with four choices — 24, 26, 49 and 51 per cent.
“There are various options doing the rounds and all those will be discussed and the matter then be sent to the Cabinet for further discussion. The civil aviation ministry has proposed 24 per cent investment by foreign airlines,” said a ministry official, on condition of anonymity.
Dipp wants 26 per cent and above. It feels unless international carriers are allowed to take a controlling stake, they would not be interested.
Foreign direct investment (FDI) up to 49 per cent is allowed in domestic airlines, but the policy currently bars foreign airlines from so investing, primarily on security grounds.
A 26 per cent cap would allow a foreign investor to have voting rights on the board of an Indian carrier, which is not allowed if the cap is 24 per cent.
While Dipp feels allowing foreign airlines to invest in domestic carriers would help the latter raise much-needed equity, this does not find support among many of the latter. They feel fledgling carriers would be susceptible to hostile takeovers, as they are passing through a difficult financial situation.
Among bigger airlines, Jet Airways has left it to the government to decide on the quantum allowed. Kingfisher and SpiceJet want the controlling stake of the airline to remain with the Indian promoter.
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However, all the airlines in India require money. Besides government-owned Air India, big losses have been reported by Kingfisher, Jet and SpiceJet, due to high cost of operation. They all face a severe liquidity crunch.
Kingfisher Airlines is looking to raise working capital and wants the government to open the domestic aviation sector for investment by foreign airlines. Promoter Vijay Mallya says only a foreign airline would be able to understand the problems of the sector.
Many analysts feel it is important that the government opens the sector but the controlling stake should remain with Indian carriers. “There should not be any security concern in allowing foreign carriers to buy stake in Indian carriers when the airports already have FDI. However, the government should ensure the ownership of these airlines stay with Indians,” said a Delhi-based aviation analyst, who did not want to be identified.
He said it was unfortunate that the government was thinking of allowing this at a time when the carriers were making huge losses.