New Delhi:
In an attempt to bail out bleeding airlines, the government is considering whether to allow foreign airlines to own up to 49 per cent of Indian carriers. Right now, foreign investors can own up to 49 per cent stake in Indian airlines, but only if they are not in the airline business abroad.
(Read: Can foreign airlines own upto 49% of Indian carriers?)What the government is now considering would allow an airline like Virgin, for example, to own up to 49 per cent in a local carrier like Kingfisher - an earlier proposal suggested a cap on FDI at 26 per cent for foreign airlines.
Here is FDI in aviation made easy to understand in answers to five commonly-asked questions:
Q) Why is no foreign airline allowed to invest in Indian airline companies right now? A) First, there is political opposition. The Left parties and trade unions have opposed this most vocally, as they have FDI in other key industries, citing fears of foreign takeover. Then, there is opposition by some domestic private airlines, especially big players like Jet Airways and Indigo. They too argue that the financial might of big airlines like might result in hostile bids and takeovers.
Security concerns, largely unfounded, have also been voiced that in a strategic sector like Aviation, what if rogue companies get access to vital information? That argument is countered by the fact that any foreign airlines that operate in and out of India would be privy to the same information.
All this opposition has meant that proposed joint ventures, like Tata-Singapore Airlines, never took off.
Q) So what is the government's new proposal?A) In November last year, the commerce ministry proposed that foreign airlines should be allowed to own up to 26 per cent stake in an Indian airline.
Now, the government says that perhaps a foreign airline should be allowed to invest in an indian carrier up to 49 per cent. This proposal will be sent to the cabinet, after taking the opinion of the law ministry and home ministry, among others.
Q) So what has changed to bring this about now?A) Of late, most airlines are losing money. Air India and Kingfisher are, perhaps, the worst hit, but others are not in great shape either. Indigo is an exception. While the government can always fund an ailing Air India, bailout packages for a private carrier are a big no. Banks too are unwilling to give loans or pick up equity.
So, allowing FDI is an option as it would help the Indian carriers stay afloat, would saves millions of jobs, would give scope for expansion and would also bring in global expertise and best industry practices
Q) But why would foreign investors come to India?A) Despite the growth in recent years, many believe India has not realized or tapped its potential. The size and scope of expansion of the Indian markets should attract foreign investors, especially foreign airlines.
Q) So how will all this affect the passenger?A) Stronger brands coming in will ensure competition. This may lead to airlines offering bigger discounts, better product and, most certainly, more flexibility in international routes. So, on a single Virgin or Lufthansa ticket, you may be able to fly from Amritsar to Birmingham/Munich to Toronto with much more ease as Virgin/Lufthansa could well be a domestic player in India as it is in Britain/Germany.