New Delhi: Less than a week after civil aviation minister Praful Patel said the Union government was considering allowing foreign airlines to buy equity in Indian carriers, the department of industrial policy and promotion (DIPP), which is part of the ministry of commerce and industry, has sought to abolish rules that bar foreign carriers from doing so. The move is aimed at helping loss-making Indian airlines raise much needed capital even as demand slows.
The current policy allows Indian carriers such as Kingfisher Airlines Ltd and Jet Airways (India) Ltd to sell up to 49% of equity to financial investors, including private equity funds, though foreign airlines are not allowed to buy stakes.
The DIPP note, reviewed by Mint, if approved by the government, will allow foreign direct investment (FDI) of up to 49%. International carriers Virgin Atlantic Airways Ltd and British Airways Plc. had said in November that they were keen to buy stakes in Indian carriers.
The aviation ministry has, for years, opposed any foreign airline picking a stake in Indian carriers. But, earlier this month, Patel said there was a “reasonable case” now to allow foreign airline investment into Indian carriers restricting such ownership to between “20% and 25%”. He said then the change in norms was just a “thought”.
“Two-three airlines have said that they want it. They need some investment,” said a senior civil aviation ministry official, who declined to be identified. He added that most airlines in the country are in favour of the move. However, CEO of Jet Airways (India) LtdWolfgang Prock-Schauer has said his firm is against it.
On Monday, shares of local airlines shot up on speculation that the government was close to taking a decision on FDI soon. Mint, quoting an aviation ministry official, had reported that the Foreign Investment Promotion Board had circulated a note.
Shares of Jet Airways shed 10.60% to Rs167.90 each on Tuesday after rising nearly 20% a day earlier on the Bombay Stock Exchange. The Kingfisher Airlines scrip lost 2.69% to Rs36.15 after expanding 7.68% on Monday. Shares of low-fare carrier SpiceJet Ltd were down 4.26% to Rs14.60 after a 12.96% rise.
An analyst said it is unlikely that the government may allow 49% in one stroke. “Several countries still resist FDI in the aviation sector on the grounds of national security,” said Kapil Arora, an analyst with Ernst and Young’s India offices, predicting financing can be secured by the cash-strapped airlines by selling smaller stakes.