Allow 100% FDI in airlines? IB raises red flag citing security issue

IB argues aviation is a highly sensitive sector, even US and Canada only permit 25% FDI

The Intelligence Bureau has raised serious concerns over the government's proposal to allow 100 per cent foreign direct investment in local airlines citing security issues, a source said.

Concerns were raised during a meeting chaired by Home Secretary Rajiv Mehrishi which was attended by senior officials from the civil aviation ministry and the IB. The meeting, held last month, was convened to discuss issues related to proposed amendments to the Aircraft Rules, 1937.

The amendments are required to operationalise the framework for allowing foreign non-airline players to own up to 100 per cent stake in domestic carriers. While the liberalised FDI policy was announced last year, it can be implemented only after putting in place the relevant rules.

According to the source, who is not authorised to speak to the media, the IB is of the view that foreign players should not be allowed to have 100 per cent stake in domestic airlines as aviation is a "highly sensitive sector".

During the meeting, the IB also submitted that even developed countries like the US and Canada have permitted foreign entities to have only up to 25 per cent stake in their respective domestic carriers.

Another concern raised was on the grounds that many airports having commercial operations are with the defence establishment. Allowing foreign players to fully own domestic carriers might pose threat to national security, especially during the times of conflict, the source said.

The IB has also suggested that the existing substantial ownership and effective control requirement should be retained. Under this norm, substantial ownership and effective control of domestic airlines should be vested only with Indian nationals.

A query sent to a civil aviation ministry spokesperson seeking comments for the story did not elicit any response.

Another meeting on making amendments to the rules to operationalise the framework for 100 per cent FDI in local airlines is likely to be held this week, the source said.

The Federation of Indian Airlines (FIA) has been opposing the move to permit overseas players to establish carriers in the country. Jet Airways, SpiceJet, IndiGo and GoAir are part of the FIA.

At present, at least three domestic carriers have foreign airlines as partners. They are Jet Airways, Vistara and AirAsia India.

In Jet Airways, Abu Dhabi-based Etihad Airways has 24 per cent stake, while in Vistara, Singapore Airlines holds 49 per cent shareholding. Malaysia's AirAsia Berhad has 49 per cent ownership in AirAsia India.