Aviation min rejects proposal to hike FDI in scheduled airlines to 74%

Move made in the wake of controversy over Jet-Etihad, AirAsia deals

The Ministry of Civil Aviation has shot down a proposal of the Ministry of Commerce & Industry to increase the FDI cap in scheduled airlines to 74% from the current 49% in wake of the controversies surrounding the infusion of foreign capital in the Jet-Etihad and AirAsia deals.
 

A senior official at the ministry said, “We are still testing waters after permitting foreign airlines to invest up to 49% in scheduled Indian carriers in September last year. A proposal was made by the Department of Industrial Policy and Promotion (DIPP) to increase FDI cap in scheduled airlines to 74%. We have turned down the proposal.”

As per the current FDI policy, foreign investment in scheduled air transport services is allowed up to 49% of the paid-up capital of an Indian carrier under the government approval route, provided that substantial ownership and effective control of the entity remains with the domestic company.

“The proposal does not mention that FDI up to 74% in scheduled operators would be allowed by foreign airlines. But the approval may pave the way for such investment, which may result in management control shifting of Indian airlines shifting to foreign entities”, added the official.

In what would be of benefit to foreign companies operating out of India, the ministry of civil aviation has, however, agreed to a proposal to allow up to 100% FDI in non-scheduled air service operators (NSOPs) under the automatic route in the general aviation sector. This would allow foreign companies to own private aircraft registered in the country without having to seek approval of FIPB. 

As regards FDI in scheduled air service operatots, only recently, the Rs 2058 crore stake sale deal between Jet and Etihad came under the scanner with market regulator Sebi along with the ministry of corporate affairs raising objections over issues of effective control of Indian airline post the acquisition by the West Asian carrier. The civil aviation ministry too has raised concerns in meeting of Foreign Investment Promotion Board (on June 14) on a plan outlined by the two airlines to shift some of the operational departments of Jet Airways to Abu Dhabi, which in effect would mean moving the 'principal place of business' out of India.

The Jet-Etihad deal is the biggest in the Indian aviation sector post the government liberalizing FDI norms in aviation.

Earlier in March this year, a controversy had erupted over the proposal of Malaysian carrier AirAsia to set up a greenfield airline along with Tata Sons and Arun Bhatia of Telestra Tradeplace. The ministry of civil aviation had held that the policy of allowing foreign carriers to buy up to 49% stake in Indian airlines referred to infusions in existing airlines and not in greenfield projects. 

The commerce ministry subsequently issued a clarification stating that the policy did not refer only to the existing airlines and that the spirit of the FDI policy was to get fresh investments into the country.