NEW DELHI: The Kingfisher crisis could force UPA-2 to take a call on at least one long-pending issue: allowing foreign airlines to invest in Indian carriers.
A day after this paper wrote a Times View backing the entry of global carriers in domestic aviation, highly-placed sources said a proposal is being sent to the Cabinet for a decision on allowing such strategic investment in an industry that is desperately in need of large cash infusion.
The aviation ministry is likely to propose that permission be given for investment up to 24% by global airlines companies in the domestic sector. The department of industrial policy and promotion (DIPP), on the other hand, is proposing slabs of 26%, 49% or 51%. The matter could come up for discussion in the Cabinet within the next month, said high-level officials in the government.
At present, foreign institutional investors are allowed to acquire equity up to 49% in Indian carriers; foreign airlines are not. The Tatas and Singapore Airlines made a joint -- and futile -- bid for Air India in 1996-97. The demand for removing this restriction gathered steam mainly from 2007 when new players started emerging on the scene in India.
The decision is said to have got delayed mainly due to opposition from a leading Indian full service airline and a leading budget carrier. Their contention has been that such a move would expose Indian carriers to hostile takeover bids, and that foreign-backed airlines could unleash predatory fares that pure domestic carriers would find difficult to match.
Vijay Mallya has always been in favour of strategic investment on the grounds that under-capitalised Indian carriers would do well with both the capital and expertise of foreign airlines.
"Investment by foreign airlines is an idea whose time has come. Because of the fears of a section of the industry, we want it to be kicked off with 24% and then raise the limit depending on experience. After all we need to see the response first. FDI in airports is allowed but not even Rs 2000 crore has come in the past decade," said a senior official. There are adequate checks to ensure that dubious investors or desi money launders do not use this route, the official said.
With Kingfisher reportedly expected to join the British Airways-led One World Alliance, an infusion of funds by BA in the cash-strapped airline is seen as a possibility. With banks reluctant to lend more to Kingfisher and the promoters unable to bring in fresh capital, FDI seems to be among the few lifelines left for the airline.
A day after this paper wrote a Times View backing the entry of global carriers in domestic aviation, highly-placed sources said a proposal is being sent to the Cabinet for a decision on allowing such strategic investment in an industry that is desperately in need of large cash infusion.
The aviation ministry is likely to propose that permission be given for investment up to 24% by global airlines companies in the domestic sector. The department of industrial policy and promotion (DIPP), on the other hand, is proposing slabs of 26%, 49% or 51%. The matter could come up for discussion in the Cabinet within the next month, said high-level officials in the government.
At present, foreign institutional investors are allowed to acquire equity up to 49% in Indian carriers; foreign airlines are not. The Tatas and Singapore Airlines made a joint -- and futile -- bid for Air India in 1996-97. The demand for removing this restriction gathered steam mainly from 2007 when new players started emerging on the scene in India.
The decision is said to have got delayed mainly due to opposition from a leading Indian full service airline and a leading budget carrier. Their contention has been that such a move would expose Indian carriers to hostile takeover bids, and that foreign-backed airlines could unleash predatory fares that pure domestic carriers would find difficult to match.
Vijay Mallya has always been in favour of strategic investment on the grounds that under-capitalised Indian carriers would do well with both the capital and expertise of foreign airlines.
"Investment by foreign airlines is an idea whose time has come. Because of the fears of a section of the industry, we want it to be kicked off with 24% and then raise the limit depending on experience. After all we need to see the response first. FDI in airports is allowed but not even Rs 2000 crore has come in the past decade," said a senior official. There are adequate checks to ensure that dubious investors or desi money launders do not use this route, the official said.
With Kingfisher reportedly expected to join the British Airways-led One World Alliance, an infusion of funds by BA in the cash-strapped airline is seen as a possibility. With banks reluctant to lend more to Kingfisher and the promoters unable to bring in fresh capital, FDI seems to be among the few lifelines left for the airline.
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