Foreign investors can have the cockpit to themselves

With 100 per cent FDI in the sector, they will no longer have to scout for an Indian partner to set up an airline in the country.

June 21, 2016 02:29 am | Updated December 04, 2021 11:02 pm IST - New Delhi:

Opening up foreign investments in the civil aviation sector, the Union government on Monday allowed overseas entrepreneurs, other than airlines, to bring in up to 100 per cent foreign direct investment (FDI) to set up an airline in India. However, foreign airlines will be permitted to invest only up to 49 per cent in an airline.

At present, foreign investment in a scheduled or regional air transport service or domestic scheduled passenger airline is permitted up to 49 per cent.

“It has now been decided to raise this limit to 100 per cent, with FDI up to 49 per cent permitted under the automatic route and beyond 49 per cent through government approval,” said a statement from the Prime Minister’s Office on Monday.

To give a fillip to airport modernisation, 100 per cent FDI will be allowed for existing airports under the automatic route. Currently, while this is allowed for greenfield airport projects, FDI beyond 74 per cent in existing airports requires government approval.

Investment opportunities

100 per cent FDI is now allowed in airports, airlines, ground handling, flying training institutes and maintenance, repair and overhaul (MRO) units.

Experts said that with Monday’s move, foreign carriers would no longer have to look for an Indian partner to set up a domestic airline and could join hands with private investors abroad.

“Though equity holding of foreign airlines is still limited to 49 per cent, a foreign airline can join hands with its sovereign fund or private investors and set up a 100 per cent foreign-owned airline in India,” said Amber Dubey, partner and India head of aerospace and defence at the global consultancy KPMG.

Mr. Dubey said the move would put to rest the controversies around “ownership and effective control”, and foreign airlines could now focus on “the customers and competition rather than wasting time on legal and regulatory issues”. Foreign airlines, at present, own stake in Jet Airways, Vistara and AirAsia India. In 2013, Jet Airways sold a 24 per cent stake to Etihad Airways. Vistara is a joint venture between Tata Sons (51 per cent) and Singapore Airlines (49 per cent). AirAsia Bhd owns a 49 per cent stake in AirAsia India and Tata Sons 51 per cent.

Sector prognosis

However, an analyst said that relaxing FDI norms in airlines may not lead to immediate investments.

“While the increase in FDI for aviation is welcome as it will allow flexibility, we are unlikely to see investors suddenly rushing to invest in airlines just because the cap of 49 per cent has been removed. Also, remember that investment by foreign airlines is still capped at 49 per cent — so it remains to be seen whether other investors such as private equities and the like would have the risk appetite to make such investments,” said Peeyush Naidu, partner at Deloitte.

Analysts cheered the move to further relax FDI norms for existing airport projects. “CAPA welcomes the decision to liberalise FDI regime for brownfield airports. India needs $30-40 billion of capital in modernising airport infrastructure in the next 10-15 years,” said Kapil Kaul, chief executive officer, South Asia, at consultancy firm CAPA. The Airports Authority of India, which owns most of the existing airports, needs restructuring to allow long-term capital flows, he added.

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