To professionalise the managements of public sector carriers Air-India and Indian Airlines before privatising them, the ministries of finance and civil aviation have considered a proposal to involve financial institutions to issue additional equity to reduce government stake in them, official sources said on Saturday.
Even though no decision is expected before a new government takes over after the general elections, few rounds of meetings have been held in the past two months in which representatives of organisations like State Bank of India, HDFC, ICICI and LIC were also present, the sources said.
The proposal to involve these institutions could run parallel with the government's final aim of privatising the two carriers and strengthen them before the process culminated, the sources said.
The move came in the backdrop of the Naresh Chandra Committee recommendation that foreign direct investment should be allowed in the aviation sector up to 49 per cent.
While the proposed civil aviation policy is primarily based on the recommendations of this panel, no decision has been taken on the issue of allowing 49 per cent FDI. The sources said further consultations were essential.
The prime objective of the proposal to allow funding by financial institutions was to ask them to invest in the two premier airlines and issue additional equity so as to reduce government's stake in them.
The sources said the total government stake in IA was worth Rs 105 crore (Rs 1.05 billion) and Rs 125 crore (Rs 1.25 billion) in A-I and added that the financial institutions would not have to cough up large amounts.
Investments by these financial institutions would make them stakeholders and allow them to involve professional managements in both these organisations, the sources said, adding that the move would also free them from government control and unshackle their operations.
They said these organisations could also decide on what kind of consortia could be brought about when the privatisation process was initiated.
In the past two months, the civil aviation ministry officials also sought the views of top global experts in this regard. One of the experts consulted was Pierre J Jeanniot, director general emeritus of International Air Transport Association, who is understood to have opposed the idea of allowing 49 per cent FDI to foreign airlines.
The sources said Jeanniot opined that such a move could lead foreign carriers, which would hold stake in IA or A-I, to ensure that their international hubs abroad be strengthened, adversely affecting the government proposals to promote aviation hubs in Indian metropolitan cities.
On fleet acquisition plans of both the carriers, they said in most of the countries funding of this process was carried out by financial institutions like the Exim Bank in the United States.
The international financial institutions also did not have to cough up the money in one go and spread it over a period of time, they said.