Draft cabinet note for 26% FDI in airlines

With Kingfisher Airlines and several other carriers landing in dire straits, the industry ministry has moved a draft cabinet note on allowing 26 per cent foreign direct investment by foreign airlines in the domestic carriers.

"Private airlines in the country are in dire need of funds for their operations and service upgrade to compete with other global carriers," the note circulated by the department of industrial policy & promotion (DIPP) said.

The department in the industry ministry has stuck to its guns suggesting per cent cap of 26 per cent and not 24 per cent, as proposed by the civil aviation ministry.

The department of industrial policy & promotion feels anything below 26 per cent would not attract strategic investment from the foreign airlines.

An investor with 26 per cent or more holding is considered strategic, as he can have say in the policy decision of a corporate entity under the Indian company laws. An investor with 26 per cent support can block a special resolution in board of directors for policy change.

The note has been circulated among the key ministries including civil aviation, finance, home and and law.

At present foreign direct investment in domestic passenger airlines is allowed up to 49 per cent by overseas entities, other than the foreign airlines. Nonresident Indians can invest 100 per cent. "Obviously the policy has not worked and it needs changes..." the official said.

Kingfisher Airlines reported net loss of Rs 468 crore, Jet Airlines Rs 713 crore and Spicejet Rs 240 crore for the second quarter of the current fiscal under the impact of rising ATF (aviation turbine fuel) price and weakening rupee.

Most of the private airlines have been seeking policy change for opening the crisis-ridden sector to foreign direct investment. Kingfisher Airlines has also approached the government for direct import of jet fuel. — PTI