Domestic aviation to open up

The government is likely to allow foreign airlines to invest in Indian domestic air carriers in the forthcoming civil aviation policy and also raise the ceiling on foreign investment to considerably more than the current 49 per cent.

At present, foreign airlines cannot take equity in Indian carriers.

But the government may choose to limit the voting rights of foreign carriers holding equity in Indian airlines.

The policy, in its present form, does not say how soon these changes will be made. Civil aviation ministry officials said the time-frame and the equity a foreign airline will be allowed to hold in a domestic carrier will be specified later on "appropriate occasions".

Government sources also pointed out that some ministries, including finance, had in the past, supported allowing foreign carriers to invest in domestic airlines.

But the government did not allow it for the fear that such a move would provide backdoor entries to foreign carriers in the domestic aviation sector.

The Richard Branson-owned Virgin Blue was, in late 2004, talking to low-cost carrier Air Deccan to pick up a stake. But the talks failed due to policy restrictions. In the 1990s, Singapore Airlines had been keen to start a domestic airline with the Tata group, but the venture had to be shelved.

Last year, the government raised the foreign equity cap in domestic airlines to 49 per cent from 40 in an effort to boost investments.

That, however, has not resulted in any inflow of foreign investment as investors see the present conditions as very stiff. Government officials say that the stiff conditions, in terms of the structure of the board of a company and key management positions, will continue.

The proposed policy will also raise the entry barriers for new airlines, by upping the minimum equity cap to Rs 50 crore from the present Rs 30 crore.

But the minimum number of aircraft that a carrier needs to operate in the domestic sector remains at the present level of five. Civil aviation ministry sources said the policy had been forwarded to the Cabinet for its consideration and is being circulated amongst various ministries for their comments.