Govt cold to Mallya's FDI proposal

FDI IN AVIATION SECTOR

Though FDI is allowed in the sector, foreign carriers cannot acquire stakes in Indian airlines.

The civil aviation ministry has said it will reject Kingfisher Airlines Chairman Vijay Mallya’s demand for allowing foreign airlines acquire stakes in Indian carriers.

“We have no knowledge of any such letter written by Mr Mallya. However, the ministry’s stance is the same. The Indian civil aviation industry is still at a nascent stage and foreign airlines will not be allowed to pick up stake in any Indian carrier,” said a civil aviation ministry official.

The civil aviation policy caps foreign direct investment (FDI) in the domestic aviation industry at 49 per cent, barring sectors like cargo, maintenance repair and overhaul, and ground-handling at airports. It does not allow direct or indirect investment by foreign carriers.

To make the change Mallya has demanded, the government will have to incorporate it in the proposed aviation policy. The draft policy, being considered by a Group of Ministers (GOM) headed by External Affairs Minister Pranab Mukherjee, does not mention changes in FDI limits on scheduled airline companies.

Mallya yesterday said that he had written to the ministry to allow foreign carriers have a strategic investment of up to 25 per cent in domestic airlines.

“All airlines, whether Jet Airways, Air India or Kingfisher Airlines, will benefit from such a move. The government should let it happen now,” he told Business Standard.

According to sources, Naresh Goyal-promoted Jet Airways is also lobbying for nod to foreign carriers to invest in domestic airlines.

A Centre for Asia Pacific Aviation (CAPA) report last year had also called for investment by foreign carriers in Indian airline companies to “bring in the much-needed strategic investment and expertise”.

Mark Martin, senior aviation analyst, KPMG, said: “Airlines are being too ambitious in wanting the government to allow foreign carriers be strategic investors. The government standpoint, that at the end of the day an airline is the sovereign property of the land and should stay that way, has merit.”

He added there were alliances and interline agreements that allowed the domestic airlines a lot of strategic advantage. “Bringing in an investor might raise issues of security and questions about the source of investor money,” he added.