UK flag carrier British Airways plans to tie up with an Indian domestic carrier in a franchise partnership.
If the move comes through, it would pave the way for international carriers to extend their networks within India, without having to make an investment. Current foreign direct investment policy does not allow foreign carriers to hold equity, directly or indirectly, in domestic airlines.
The franchise model that BA -- Europe's third-largest carrier -- follows globally involves no FDI, but allows the franchisee (domestic airline) to use its livery, brand and code, apart from providing management expertise.
BA is believed to be in discussions with several domestic airlines, Wadia-owned Go Air among them.
Confirming that BA has been looking at such franchise agreements in India, Civil Aviation Secretary Ashok Chawla said: "So long as it is not surrogate cabotage, we do not have any problem with franchising."
Airline cabotage refers to the carriage of air traffic that originates and terminates within the boundaries of a given country by an air carrier of another country. Rights to such traffic are usually entirely denied or severely restricted.
The government currently does not have guidelines on franchise arrangements, so, Chawla said a senior ministry official would meet BA executives on September 15 to understand the business plan.
A British Airways spokesperson said: "We will comment when there is something to talk about. As of now we will not comment on rumours and speculation."
A GoAir spokesperson said: "In view of the possibility of the government relaxing its rules on flying abroad and in order to give our customers better value, we are exploring code share and alliances with various airlines from West Asia, Europe and America."
BA has had franchise agreements with the South African carrier Comair, Glasgow-based Logan Air, Scandinavia's Sun Air and Kenya-based Regional Air.
BA is keen to consolidate its market position in India, which is the airline's largest contributor after the US in terms of passenger volumes. It has been looking for a partner, especially after its inter-line agreement with Jet Airways was severed.
A franchise arrangement would also help it gear up for the rising competition in India, more so when Jet Airways and Kingfisher's international operations compete with BA for the same market share. The airline has over 48 flights a week from various Indian cities.
BA's arch rival Virgin Airlines has also expressed interest in a full-service domestic carrier in India when promoter Richard Branson visited India. It has also openly talked of buying equity in an Indian domestic carrier if it is allowed.
Although the government favours foreign airlines investing in India, it has faced resistance from domestic carriers.
"India is the only country that distinguishes between foreign airline investment and foreign institutional investments. Worldwide, there is no such distinction," said Kapil Kaul, CEO (India and Middle East), Centre for Asia Pacific Aviation.