Decision On Tata Airline By July 18

A decision by the Foreign Investment Promotion Board (FIPB) on the Tata airline proposal is expected by July 18.

The Tatas have in a letter to the civil aviation ministry said that foreign institutional investor (FII) representation on the board, which is nil at present, will not exceed one-third at any stage and that the FIIs will not be subsidiaries of any foreign airlines. The leasing company from which aircraft is leased will also not be a subsidiary of any foreign airline, they added.

The Tatas have assured the ministry that there is no agreement enabling any foreign airline to interfere in the management of the domestic airline.

The civil aviation ministry had sought clarifications from the Tatas regarding foreign equity participation in the venture and the in-principle agreement with Singapore airlines for technical services.

In a letter dated June 18, the ministry said that on perusal of the Tata proposal, it was noticed that 40 per cent foreign equity investment by FIIs amounting to US $ 83 million was involved and that the company had an agreement with SIA for technical services. The ministry asked the Tatas to provide evidence that it will comply with the latest foreign equity guidelines issued on June 11 latest by June 30.

At the last FIPB meeting on June 13, the project clearance was deferred for four weeks. A decision on the venture is now expected to be taken no later than July 11-17.

Sources confirmed that the Tatas have in turn agreed to comply with the latest guidelines and have specified in a detailed letter to the ministry that the new company will be registered and have its in principle operations in India. It has also said that the chairman and two-third of the board of directors will be Indians.

The letter specifies that the foreign institutional investors (FIIs) investing in the Tata airline venture will not have foreign airlines as their shareholders. The company has declared that no foreign airline has commercial, management or ownership interest in the project and the agreement so far is limited to a technical services agreement with Singapore airlines.

Sources however pointed out that despite detailed assurances from the Tatas, the project will face trouble in getting clearance since opposition to the project is building.

Already, Indian Airlines and Jet Airways have been lobbying with the government, arguing that the entry of Tata Airline will lead to overcapacity. This is despite the fact that the ministry recently cleared import/induction of 25 new aircraft in the country.

Secondly, it is argued that the fact that the Government of Singapore Investment Corporation "may" hold a small equity in some other airline will be used as a garb for delaying the clearance of the project. Further, political opposition to the project is growing, partly in a bid to protect Indian Airlines and partly to protect political interests in other private airlines.