Policy tailwind likely for domestic carriers

Cabinet may approve proposal to allow foreign airlines to invest in Indian firms likely to take up Air India?s financial restructuring plan

The Cabinet committee on economic affairs is likely to clear a proposal to allow foreign carriers to invest in their Indian counterparts tomorrow. It may also approve Air India’s financial restructuring plan.

“The matter is likely to be discussed in the Cabinet meeting on Thursday and it may be cleared. The proposal is to allow foreign carriers to buy up to 49 per cent stake in our carriers,” said a Cabinet minister, on the condition of anonymity.

A senior commerce department official said the note floated by the government was the “final” note for the Cabinet to consider, hinting that there was no scope for another round of inter-ministerial consultations.

While the civil aviation and finance ministries have batted for 49 per cent FDI, the department of industrial policy and promotion, under the ministry of commerce and industry, has approved 26 per cent FDI. As of now, foreign carriers are not allowed to invest in India carriers but 49 per cent FDI is otherwise allowed.

Kingfisher Airlines and SpiceJet are open to foreign money and have welcomed the move to allow foreign carriers being allowed to acquire stakes in airlines.

Kingfisher chairman Vijay Mallya met commerce minister Anand Sharma this evening.

Air India’s financial restructuring plan is also likely to be taken up by the Cabinet. The plan includes debt restructuring of Rs 18,000 crore by banks, along with committed equity infusion by the government. Of the Rs 22,000-crore high-cost working capital debt of the government carrier, banks would restructure Rs 18,000 crore. Another Rs 10,500 crore would be converted into long-term debt, with a repayment period of 10-15 years. The remaining Rs 7,400 crore would be repaid to banks through a government-guaranteed bond issue.

Under the second stage of the restructuring, the government would infuse equity into the airline till 2020-21. A group of ministers, headed by finance minister Pranab Mukherjee, had recommended infusion of Rs 23,000 crore into the airline till 2020-21.

As part of the structuring, the government had, in the Budget, announced it would infuse Rs 4,000 crore in 2012-13, raising the airline’s equity base to Rs 7,345 crore.