NEW DELHI: The civil aviation ministry is likely to drop its opposition to higher investment by foreign airlines in the aviation sector and agree to let them hold up to 49% in domestic carriers, handing out a possible lifeline to cash-strapped airlines.
At present, foreign carriers such as British Airways, Singapore Airlines and Emirates are banned from directly pumping money into the aviation sector, although financial and other non-airline investors can invest up to 49% in Indian airlines.
The aviation ministry had traditionally been opposed to allowing international airlines to invest in local carriers, but had relaxed its opposition, partly as a result of hectic lobbying by some loss-making players such asKingfisher Airlines and GoAir. After first saying global carriers should not be allowed to hold beyond 24%, the ministry had relented to allow them to pick up to 26% stake.
"We may further relax our stance on allowing foreign carriers to invest in Indian airlines. There is no difference between 26% and 49% because the rights of the shareholders remain the same at these two different levels of shareholding. But if we do allow 49%, we will impose some restrictions," said a senior civil aviation ministry official, on condition of anonymity.
The official added that new Civil Aviation Minister Ajit Singh was of the view that international carriers could be allowed to hold more than 26%, and was likely to give a clear direction in this regard.An investor with 26% and more stake in a company has the power to veto special resolutions of the company, an important tool to exercise influence over key corporate decisions. But while the rights of the investor do not change unless its shareholding crosses 50%, a higher foreign investment ceiling permits the Indian company to access more funds without any dilution of its rights.
Cabinet to Take Final Call
Access to funds is a critical issue for the aviation industry, with most domestic airlines registering huge losses in the first half of the current financial year and industry association Assocham estimating total losses of the industry for the whole year at as high as Rs 15,000 crore. The cumulative debt of the industry has risen to Rs 70,000 crore, raising concerns about loan repayment defaults, and rising non-performing assets (NPAs) for banks.
"Given the financial state of the industry, if the civil aviation ministry recommends 49%, it should be strongly welcomed," said Kapil Kaul, the South Asia CEO of the Centre for Asia Pacific Aviation, an aviation consulting firm.
But the final decision to allow foreign airlines to invest in local carriers will be taken by the cabinet, and after the recent debacle on the retail front, it remains to be seen whether the government will have the appetite or the inclination to pitch for another set of liberal FDI norms, albeit in a different sector.
The Department of Industrial Policy and Promotion had in an inter-ministerial note last October proposed that international carriers be allowed to hold a 26% stake in local airlines. Recently, the Working Group on Civil Aviation (WGCA) comprising secretaries of various ministries recommended that the FDI limit be imposed at 49%.
(Source- http://economictimes.indiatimes.com)
At present, foreign carriers such as British Airways, Singapore Airlines and Emirates are banned from directly pumping money into the aviation sector, although financial and other non-airline investors can invest up to 49% in Indian airlines.
The aviation ministry had traditionally been opposed to allowing international airlines to invest in local carriers, but had relaxed its opposition, partly as a result of hectic lobbying by some loss-making players such asKingfisher Airlines and GoAir. After first saying global carriers should not be allowed to hold beyond 24%, the ministry had relented to allow them to pick up to 26% stake.
"We may further relax our stance on allowing foreign carriers to invest in Indian airlines. There is no difference between 26% and 49% because the rights of the shareholders remain the same at these two different levels of shareholding. But if we do allow 49%, we will impose some restrictions," said a senior civil aviation ministry official, on condition of anonymity.
The official added that new Civil Aviation Minister Ajit Singh was of the view that international carriers could be allowed to hold more than 26%, and was likely to give a clear direction in this regard.An investor with 26% and more stake in a company has the power to veto special resolutions of the company, an important tool to exercise influence over key corporate decisions. But while the rights of the investor do not change unless its shareholding crosses 50%, a higher foreign investment ceiling permits the Indian company to access more funds without any dilution of its rights.
Cabinet to Take Final Call
Access to funds is a critical issue for the aviation industry, with most domestic airlines registering huge losses in the first half of the current financial year and industry association Assocham estimating total losses of the industry for the whole year at as high as Rs 15,000 crore. The cumulative debt of the industry has risen to Rs 70,000 crore, raising concerns about loan repayment defaults, and rising non-performing assets (NPAs) for banks.
"Given the financial state of the industry, if the civil aviation ministry recommends 49%, it should be strongly welcomed," said Kapil Kaul, the South Asia CEO of the Centre for Asia Pacific Aviation, an aviation consulting firm.
But the final decision to allow foreign airlines to invest in local carriers will be taken by the cabinet, and after the recent debacle on the retail front, it remains to be seen whether the government will have the appetite or the inclination to pitch for another set of liberal FDI norms, albeit in a different sector.
The Department of Industrial Policy and Promotion had in an inter-ministerial note last October proposed that international carriers be allowed to hold a 26% stake in local airlines. Recently, the Working Group on Civil Aviation (WGCA) comprising secretaries of various ministries recommended that the FDI limit be imposed at 49%.
(Source- http://economictimes.indiatimes.com)
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