FDI in airlines: Cabinet to decide in next few weeks

While the Ministries of Finance and Civil Aviation have already approved the proposal to amend the FDI guidelines for the aviation sector, some other ministries are yet to give their nod, they said.u00a0

The Commerce Ministry had moved a Cabinet note in this regard a few weeks ago to allow foreign carriers pick up equity of up to 49 per cent in their Indian counterparts.

At present, India allows foreign investors, not related in any way to airline business, to buy up to 49 per cent stake in domestic airlines, but foreign carriers are not permitted to invest in them.

Accepting a major demand of the cash-strapped aviation industry, the government had in January launched the process to allow foreign airlines picking up to 49 per cent stake in Indian carriers.

Allowing foreign airlines to buy stake in domestic carriers is expected to benefit Kingfisher Airlines, which is burdened by a debt of over Rs 7,000 crore.

While Kingfisher has been strongly pitching for permission to allow foreign airlines to invest in domestic carriers, other major carriers like Jet Airways and the only profit-making airline, IndiGo are opposed to it.

There has been a mixed response to the issue so far, with even the Planning Commission, in its document on the aviation sector for the 12th Plan, acknowledging that there was no consensus on it.

While supporters of the proposal say it would ensure cash flow for the beleaguered airlines with banks unwilling to pick up equity or give loans, the opponents express apprehension that it would open the door to foreign carriers to target Indian airlines for finally acquiring them.

Interestingly, even the Federation of Indian Airlines (FIA), an umbrella body of all Indian carriers, once headed by Kingfisher promoter Vijay Mallya, had earlier expressed concern over the proposal.

It had said that further liberalisation of FDI norms "would only impact adversely the financial health and future of India's own homegrown carriers; and also the civil aviation sector... It is important that India should seek reciprocal opening of airline industry in other countries, before allowing open access of its market to foreign carriers."

FIA had also pointed out that "sovereignty and national interest are usually the reasons that most countries do not allow free open-market competition in their respective airline industries."

The International Chamber of Commerce (ICC), in a paper on the issue, has argued that foreign takeovers would run counter to bilateral agreements, most of which require "substantial ownership and control" by local nationals of the airline.

While governments have argued that foreign ownership of airlines could compromise national security, they have also opined that it would be "unwise to turn over the nation's principal earner of foreign exchange into foreign hands".

The ICC paper also quoted governments' concerns that in difficult economic times, "foreign owners would be tempted to discontinue vital air links, leaving the country vulnerable to a serious disruption in the availability of air services".

The principal concern of labour unions was that job losses would follow once foreign owners take control of an airline.

Union officials have also questioned whether the terms and conditions of employment would be governed by foreign, rather than domestic labour laws.
u00a0