Govt may allow foreign airlines to invest in local carriers: Official

Oct 24, 2011 |

Reuters

New Delhi

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The government is likely to approve a plan to allow foreign airlines to buy stakes in Indian carriers, industry secretary told Reuters on Monday.

"It is likely to happen," R.P. Singh told Reuters over the phone, when asked if a proposal to allow foreign airlines to invest in Indian counterparts would be approved by the federal government.

India allows foreign investment of up to 49 per cent in Indian carriers, but foreign airlines are not allowed to invest directly or indirectly in domestic carriers.

The proposal will come as a lifeline to struggling Indian carriers saddled with high debt and mounting losses in a crowded and competitive Indian aviation market.

Kingfisher, whose auditor had recently said that the airline needs fresh funds to remain viable, rose nearly 6 percent. Jet Airways rose 3.6 percent, while SpiceJet advanced 4 per cent.

The Department of Industrial Policy and Promotion and the Civil Aviation Ministry differ on the quantum of stake that foreign airlines be allowed to pick up, government sources told Reuters on Monday.

While the industry ministry wants foreign airlines to be allowed to take 26 per cent stake, the civil aviation ministry wants it capped at 24 per cent, the sources said.

FDI in Indian airline companies is a sensitive issue and sources say the Ministry of Home Affairs had in the past withheld clearance because of security reasons even though it was discussed informally at a meeting of the cabinet committee on security.

Earlier on Monday, the Economic Times newspaper said the Indian cabinet would shortly consider the FDI proposal and that the industry ministry has circulated a draft cabinet note for inter-ministerial consultations after a nod from the civil aviation ministry.

Earlier this month, Civil Aviation Minister Vayalar Ravi had said his ministry had not rejected the FDI proposal sent by the DIPP and the plan was under consideration.

Most Indian carriers, with the exception of IndiGo are loss-making and full service carriers such as Air India, Jet and Kingfisher have high debt on their books.

Efforts by Kingfisher and Jet to raise equity from the capital markets have been unsuccessful so far.

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