FDI cap in air cargo raised to 74 per cent

CABINET OPENS UP SKIES FOR MORE FOREIGN FUNDS

In a significant development, the government today allowed foreign carriers to take up to 74 per cent stake in cargo airlines.

Previously, while foreign direct investment (FDI) up to 49 per cent was allowed in cargo airlines, international carriers were not allowed to invest in cargo operations.

"The Cabinet decision says that no direct or indirect investment by foreign airlines will be allowed in case of scheduled, non-scheduled and chartered airlines. However, 74 per cent FDI from foreign airlines will be allowed in cargo carriers," said a civil aviation ministry official.

The government also approved 100 per cent FDI in maintenance, repair and overhaul (MRO) organisations, flying training institutes (FTIs) and helicopter services (up from 49 per cent).

Also, FDI in ground handling services and non-scheduled airlines has been increased to 74 per cent up from the earlier 49 per cent. However, FDI for scheduled airlines "" a controversial area were the Cabinet has been divided ""remains capped at 49 per cent.

The CCEA decisions would give a major boost to FDI in the aviation sector. "At present, there are only 12-13 aircraft dedicated to freighter services. Once FDI from foreign carriers is allowed, many major carriers will buy stakes in Indian cargo carriers," said Kuljeet Singh, partner, Ernst &Young (E&Y).

In India, apart from Air India, which has dedicated freighter operations, Jet Airways has plans to start cargo operations in the next 18 months. Flyington Freighters and Aryan Cargo Express are also slated to start cargo services.

Experts said the move would bring massive investment in MRO and ground-handling segments.

"The MRO segment is capital-intensive. The decision will, therefore, lead to a lot of foreign investments in this segment. On the ground handling side, one can see foreign companies like Menzies and SATS increasing stakes in their respective ground handling joint venture companies," said Kuljeet Singh.

Menzies has a tie-up with Booba whereas Singapore-based SATS has tied up with national carrier Air India to form ground handling companies.

In the MRO sector, apart from Air India, which is planning to set up four MRO facilities with Airbus and Boeing, GMR is tying up with Lufthansa Technik to set up an MRO, while Kingfisher is looking at a tie-up with Gulf-based aircraft maintenance service provider, GAMCO.

Experts also see immediate interest from international helicopter operators, who have been allowed to fully own their Indian ventures.

"Global helicopter operators like Canada Helicopter Company and America-based Bristow have been in talks with various Indian companies to set up bases here. As it is, helicopter and charter yields in India are 30 per cent lower than international standards. With better equipment, aircraft and training facilities, the entry of international helicopter operators should lead to an increase in benchmarks and hence yields," said a sector expert.

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OTHER DECISIONS

The Cabinet Committee on Economic Affairs (CCEA) has approved recapitalisation of Rs 1,795.97 crore of 27 regional rural banks (RRBs) across 15 states. While 50 per cent of the cost will be borne by the Centre, 15 per cent will be made by state governments and 35 per cent by the sponsor bank.

The minimum support price for Tosa Desi-5 variety of raw jute increased by Rs 195 to Rs 1,250 per quintal for the 2008-09 season.

Rs 600-crore scheme approved to strengthen the Project Tiger during the 11th Five-Year Plan (2007-2012), which will lead to creation of eight new tiger reserves and rehabilitation of people living in core area of tiger habitat.

Scholarships worth Rs 1,868.50 crore for minority students approved. This amount will be spent during the Eleventh Plan and according to government estimates, 2.5 million scholarships will be given to students of classes 1 to 10.

Merger of 50 per cent dearness allowance with basic pay to employees of central public-sector enterprises following 1997 industrial dearness allowance pattern of scales of pay approved.

Subsidy approved to the Arunachal Pradesh government for operating an MI-172 helicopter service between Guwahati and Tawang.

Nod to CPWD to proceed with the tendering process for construction of Afghanistan Parliament building and Indian Chancery Complex in Kabul.

The tenure of the Commission for Economically Backward Classes extended for six months from February 1.