Foreign Airlines To Be Allowed 26% Stake In Domestic Ventures
The partners of the United Front government have reached a consensus that foreign airlines should be allowed to hold a 26 per cent equity stake in domestic airlines. This is expected to resolve a tortuous debate within the government on the contentious issue.
The new aviation policy, which is being put together by finance minister P Chidambaram and his cabinet colleagues, is also expected to liberalise rules pertaining to the construction of airports and the acquisition of aircraft.
The new rules will lead to a complete overhaul of the policy that was unveiled in April when the UF government scrapped an earlier policy that allowed foreign airlines to hold up to 40 per cent in domestic airlines on a case-by-case basis.
The move to permit a 26 per cent foreign stake now stems from the growing realisation within the government that private airlines need to have deep pockets and adequate technical knowhow attributes that only be imparted by financially strong foreign partners to run a domestic airline efficiently and to make it financially viable.
The new policy will especially be welcomed by the Tatas who had proposed to start an airline in association with Singapore Airlines. The Tata-SIA proposal had become a casus belli in the raucous debate over allowing foreign airlines into the country.
To ensure that the foreign airlines have a firm commitment to the joint venture, it was necessary to dangle a carrot by permitting them to pick up a stake in domestic airline without compromising the rights of the local partner to operate the airline.
The 26 per cent limit will ensure that foreign airlines will have just enough powers to either stall or move special resolutions, but not enough to take complete control of the airline.
The cap also provides a face-saving formula for Union minister for civil aviation C M Ibrahim who has consistently steamrolled all attempts to allow foreign airlines to pick up a stake in domestic airlines.
The fresh capital infusion, which is expected as a result of the liberalised policy, could come as boon to the domestic private airlines which have turned in dismal performances with the exception of Jet Airways, which has the backing of two foreign airlines Kuwait Airways and Gulf Air.After the UF announced its policy in April, Jet Air was directed to shed the foreign shareholding in Tailwind Inc the Isle of Man-registered holding company of Jet Airways in which the two foreign airlines hold 20 per cent each by October 15. The new policy would negate the earlier directive to divest the entire foreign stake.
An earlier proposal mooted by one of the joint secretaries in the civil aviation ministry had envisaged a 26 per cent stake by foreign airlines.
However, the then Congress-I government had decided to allow the foreign airlines to hold up to 40 per cent.
The need to put together a fresh civil aviation policy was conceived after Prime Minister Inder Kumar Gujral expressed his displeasure over the existing policy during his official visit to Kathmandu recently.
The new policy may also come up with more liberalised norms for acquisition of aircraft and other features to make it more attractive for the private sector to invest in airlines and airport infrastructure.