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Government considers allowing foreign airlines to buy stakes in local carriers

Government considers allowing foreign airlines to buy stakes in local carriers
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First Published: Wed, Jan 14 2009. 01 00 AM IST

Looking ahead: Civil aviation minister Praful Patel. Airlines in India are struggling with competition, costs and declining traffic. Harikrishna Katragadda / Mint
Looking ahead: Civil aviation minister Praful Patel. Airlines in India are struggling with competition, costs and declining traffic. Harikrishna Katragadda / Mint
Updated: Wed, Jan 14 2009. 01 00 AM IST
New Delhi: The Indian government is considering allowing foreign airlines to buy up to a 25% stake in local carriers, civil aviation minister Praful Patel said on Tuesday, as the aviation industry struggles to cope with slowing traffic and declining economic growth.
Patel had maintained until late last year that foreign airlines could not be allowed to invest in Indian carriers because most of the local carriers were not mature enough. The suggestion found no place in a civil aviation policy that is still awaiting Union cabinet approval.
Looking ahead: Civil aviation minister Praful Patel. Airlines in India are struggling with competition, costs and declining traffic. Harikrishna Katragadda / Mint
On Tuesday, however, the minister said the possibility of overseas airlines being permitted to buy a stake of between 20% and 25% in domestic carriers cannot be ruled out now. “There is a (more) reasonable case now than there was three-four years ago,” he said.
India’s airlines have been struggling with intense competition, high costs and declining passenger traffic as economic growth slows. Airlines such as Kingfisher Airlines Ltd, the country’s second biggest by passengers flown, have said they favour foreign investment. International carriers Virgin Atlantic Airways Ltd and British Airways Plc. said as late as November that they were keen to acquire stakes in Indian carriers.
Analysts doubt whether such a proposal—which has been controversial in the past— could be implemented in the time left before the general election, which is due to take place by May.
“I doubt they will be able to do so in three-four months, but they can start the ball rolling,” said Robey Lal, former board member of the Airports Authority of India and former India head of the International Air Transport Association (Iata).
Foreign investors could help introduce better management practices to the country’s airlines, but there should be safeguards. “It should not be for airlines bringing in money just to bail out an airline. That would be unfortunate,” Lal said. “That would be just for the egos, serving one or two people.”
Another analyst suggested that direct investment by foreign airlines in local counterparts should be allowed on a reciprocal basis “wherein an airline in India or an institutional investor is also able to acquire a stake in the foreign airline (of that country) as well.”
Most countries, including the US and the UK, do not allow foreign airlines to invest in their carriers because of “anti-trust issues, monopolistic tendencies in the market and security issues,” said Mark Martin, who works at consultant KPMG’s India office.
Meanwhile, the government may soon allow Delhi International Airport Ltd (DIAL), led by GMR Infrastructure Ltd, to charge a new airport tax, also called an airport development fee (ADF), for two years until the airport is upgraded, Patel said.
The airport operator had sought to charge Rs1,000 from each international passenger and Rs300 from each domestic traveller starting 1 January, until December 2011 to raise about Rs1,400 crore to fund airport expansion and cover a shortfall in revenue.
The civil aviation ministry previously rejected the proposal after the law ministry advised it that the 2006 privatization agreement did not permit such a levy.
The proposed ADF will not fall under the revenue sharing agreement that DIAL has with state-owned Airports Authority of India. It is unclear if the law ministry’s opinion will be overlooked in allowing the levy. Patel said a similar fee was not immediately on the cards for the Mumbai airport.
Patel also said the process of bidding for the new Navi Mumbai airport, which had been expected to be completed by now, is running late by a year. That will likely delay the opening of the airport, earlier expected around 2012-13.
A group of ministers, or GoM, including Patel, home minister P. Chidambaram, science and technology minister Kapil Sibal and law minister H.R. Bhardwaj, are likely to meet again on 20 January to decide on another proposed airport, at Jewar in Uttar Pradesh, on Delhi’s eastern outskirts in Greater Noida.
The GoM last met in October but could not decide whether the airport—Uttar Pradesh chief minister Mayawati’s dream project—can be approved given agreements with DIAL.
The aviation minister also said the expansion of the equity base in National Aviation Co. of India Ltd-run Air India is expected to come up for Union cabinet approval next month. The airline had sought a soft loan and expansion of its equity base of about Rs145 crore, given huge losses on account of high fuel costs and an ongoing merger.
It had sought around Rs4,000 crore, but it is unclear what the final amount granted by the government would be.
To control the impact of high fuel prices, the ministry had also sought a reduction in sales tax on aviation turbine fuel by giving it the status of declared goods. A Bill had been expected to be introduced in Parliament in December, but Patel indicated it wasn’t on the horizon.
tarun.s@livemint.com
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First Published: Wed, Jan 14 2009. 01 00 AM IST