Why national carrier Air India could remain with an Indian owner

Norms for international traffic rights a major factor

The government is unlikely to allow foreign bidders to have a majority stake in Air India, which is in the process of privatisation. The group of ministers (GoM) exploring ways to privatise Air India is of the view that Indian ownership is important for the national carrier tag to be retained, sources said. 

However, foreign investors will be able to participate in the bidding to own up to a 49 per cent stake in the loss-making carrier in a partnership with an Indian entity, it is learnt.

The international rules on airline ownership and control especially make it difficult for foreign entities to have a majority stake in Air India, a top official said. “International norms mandate certain ownership rule for airlines which cannot be bent for Air India in isolation. Also, the government wants to keep the national carrier tag status,” he said. Not adhering to the rules might make it difficult for Air India to utilise the flying rights it has to operate in foreign countries. 

Even as a decision has not been taken yet, the GoM seems to be in favour of vesting majority ownership for Air India in an Indian entity, another source said. The process of disinvestment of Air India is being guided by a GoM, referred to as a committee for an alternative mechanism, headed by Finance Minister Arun Jaitley. The committee has held two rounds of meetings.

The International Civil Aviation Organisation (ICAO) guidelines on ownership and control have two aspects. The first involves placing limits on foreign nationals’ ownership of the voting equity share capital of airlines. 

For instance, USA places a limit of 25 per cent on foreign ownership of its airlines; for Japanese airlines the limit is 33 per cent; and the European Union (EU) limits non-EU ownership of the airlines of its member states at 49 per cent. The second element of the restrictions involve the nationality clauses present in the bilateral air services agreements between countries. In essence, the traffic rights granted under these bilaterals require that airlines benefiting from these rights are substantially owned and effectively controlled by nationals of the state in question.

Although the regulation is not binding and the countries are free to set their own terms, India will have to amend the clause in its agreement with countries adhering to the regulations, the official said. “The government has to discuss and convince all the countries in order to change the norms. It is unlikely that the government will want it,” he said. Air India has flying and landing rights across the world.

Among foreign airlines, several including British Airways, Lufthansa and Qantas were privatized, but foreign ownership was not allowed, one of the officials quoted above said.

(This piece was first published on September 6, 2017)