Foreign airlines can own 49% in Indian carriers

In a move aimed at boosting the cash-strapped aviation sector, the government on Friday decided to allow foreign airlines to pick stakes up to 49 per cent in private Indian carriers, which was immediately welcomed by the industry.

The decision of Cabinet Committee on Economic Affairs to permit foreign airlines to invest in scheduled and non-scheduled air transport services would pave way for much-needed equity infusion into Indian carriers which are in dire need of funds for operations.

"Higher foreign investment inflows are necessary at the present juncture in order to strengthen the sector," a government statement said.

Briefing mediapersons on the CCEA decision, Commerce Minister Anand Sharma said the existing policy in aviation sector allowed FDI upto 49 per cent and it was allowed for the non-scheduled operator but not for scheduled operators.

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"The government has now permitted foreign airines to invest, under the government approval route, in the capital of Indian companies operating scheduled and non-scheduled air transport services, upto the limit of 49 per cent of their paid up capital," he said, adding strategic investors will come in when they have stake.

Introduction of global best practices, concomitant with the induction of FDI from foreign airlines, is expected to lead to higher service standards and induction of state-of-the-art technologies in the air transport sector, the government statement said.

Indian private airlines have been demanding permission to foreign airlines to invest as they have been facing severe cash crunce on account of high taxes on aviation turbine fuel, rising airport fees, costlier loans, poor infrastructure and competition.

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Except IndiGo, all airlines have posted losses in the financial year ending on March 31.

Private airline companies today welcomed the much-awaited policy change ushering in foreign direct investment by overseas carriers, saying the policy will give a big boost to the ailing sector.

"The FDI in airlines will open up a wide range of opportunities for both domestic as well as foreign carriers which wish to participate in the strong growth potential for civil aviation in our country," Vijay Mallya-owned Kingfisher Airlines said in a statement.

Expressing hope that the move will enable the carrier to re-engage with prospective investors in a more meaningful manner, it said the government decision would help the airline recapitalise and ramp up its operations.

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Kingfisher Airlines Chairman Vijay Mallya termed the government decision to allow 49 percent FDI in airlines by foreign carriers as bold and fantastic.

"Bold decisions taken by the government. Fantastic to restore confidence and kick start economic growth...," he said on micro-blogging site Twitter immediately after the decision.

Naresh Goyal-led Jet Airways also welcomed the move. "We welcome any policy (decision) initiated by the government," Jet said.

Reacting to FDI in domestic airlines, founder of the low-cost airline model Captain GR Gopinath told PTI that the move needs to be seen in its totality than only from the investment point of view.

"It is good for the industry and the common man. We need more airlines and this move will bring a number of overseas carriers to India," Gopinath said, adding the overseas players will now engage in talks with the domestic airlines more seriously.

"The government was only talking about it. But now with this bold step, some concrete proposals are expected to come through," he said.

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SpiceJet, which could not be contacted today, had told PTI yesterday that it was in talks with a number of Gulf-based carriers to dilute its stake as and when the government allows such a policy measure.

"We are in talks with a number of Gulf-based airlines for equity participation if the government allows it. As everything depends on the policy decision, I cannot comment anything more on this," a SpiceJet spokesperson had said, without divulging more details.

Meanwhile, the Abu Dhabi-based Ethihad Airways today said it has identified equity investments in other airlines here.

"Equity investment strengthens our relationships and allows us to work together with partners to identify revenue generation and cost management opportunities. We see equity as a positive reflection of our partnership approach.

"We will make such investment where we believe the commercial prospects are strong, where we see like-minded business philosophies," a Etihad Airways spokesperson said in a statement hours before the Cabinet cleared the FDI policy.

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