Cabinet nod to allow foreign airlines to buy up to 49 per cent stake in Indian carriers is likely to become a reality only after the Budget. Reason: The government does not want to be seen as favouring any one company.
Foreign direct investment (FDI) up to 49 per cent is permitted in domestic airlines, but foreign airlines are not allowed to pick up stakes in domestic carriers. The government’s move to allow the FDI in domestic airlines is expected to benefit cash-strapped Kingfisher Airlines. It could also provide a reprieve for the many airlines that are also under financial strain and have been looking at raising funds.
Kingfisher and SpiceJet have warmed up to the idea of foreign funding, but Jet Airways and IndiGo have shown no interest.
A senior government official closely associated with the thought process of the government said the underlying message from the Prime Minister’s Office was to time the permitting of FDI in a way that would not be perceived as a move to benefit a person or a company.
“It is not coming in a hurry,” he told Business Standard. “A part of the problem is that domestic carriers are not very clear on the efficacy of this move. This needs to be kept in mind.” The official also pointed out that foreign airlines would like to have a chunk of stake in the Indian carriers. “Otherwise, why would they come in here?”
The official hinted that the Cabinet approval on permitting 49 per cent FDI in aviation might be taken up some time after the Budget. “It can most likely happen in June only. That is the period when the government wants to push critical FDI policy clearances.”
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Officials in the department of industrial policy and promotion under the ministry of commerce and industry also said that all consultations pertaining to the matter were over. The department, said one of its officials, is waiting for an opportune time before it gives a final nod to the proposal through the Cabinet. “The government is not eager to push it before the elections in five states are over (by next month),” he said.
The move is expected to open the doors for many international carriers that have been looking at making an entry into the country. These include British Airways, Air Asia and Singapore Airlines. They plan to leverage the large domestic network of these Indian carriers.
Civil Aviation Minister Ajit Singh is pushing for the proposal to be cleared soon by the Cabinet, but he has also clarified that it would not be to bail Kingfisher out.
The ministries of finance, commerce and industry and civil aviation are working on the modalities for the implementation of the GoM decision so it could be taken to the Cabinet.
They have to consider concerns being raised on the breach of the takeover code prescribed by the Securities and Exchange Board of India if foreign carriers are allowed to hold 49 per cent in the domestic carriers.
The code requires an entity acquiring 25 per cent or more equity in a listed company to mandatorily make an open offer for another 26 per cent to ensure individual shareholders too get an exit route. In the case of airlines, this will mean that a foreign airline can acquire up to 51 per cent stake, thus breaching the 49 per cent FDI cap.
The ministries concerned are now looking at the possible ways to address this concern before taking the proposal to the cabinet.
According to conservative estimates, passenger traffic by 2025 is likely to be around 540 million as the fleet size of scheduled airlines increases to 1,500 from the present 430. At the same time, cargo traffic is expected to touch 9 million tonnes from 2.33 million tonnes in the last financial year.