24 percent cap on FDI by international airlines proposed

November 17th, 2011 - 9:54 pm ICT by IANS  

KPMG New Delhi, Nov 17 (IANS) India’s civil aviation ministry has proposed a cap of 24 percent on foreign direct investment (FDI) by international airlines in domestic carriers but has left the final decision to the cabinet, an official said Thursday.

“The ministry has proposed a cap of 24 percent investment by foreign airlines in domestic airlines,” a senior official said on condition of anonymity.

“But the decision lies with the cabinet as it is a policy matter. The cabinet will take a decision in a couple of weeks,” the official added.

The development came as Vijay Mallya, chairman of the cash-strapped Kingfisher Airlines, pitched for the entry of airline FDI in the domestic sector.

“I am an avid supporter of FDI. I don’t see any reason why FDI from strategic partners like an airline should be banned or not permitted. Who would understand an airline better than another airline?” Mallya had said.

The ministry’s decision is significant in light of the fact that recently the department of industrial policy and promotion (DIPP) proposed a 26 percent cap.

“Whatever decision the government takes, everyone will accept,” the official admitted.

Currently, the government allows for an FDI intake of 49 percent in Indian carriers by non-airline players but bans foreign airlines from directly investing due to security reasons.

Industry sources say the fresh infusion of investment would give a lifeline to the struggling sector, which bears the brunt of high jet fuel prices caused by state levies and high interest cost of their debt.

“Current financial position of Indian carriers is extremely challenging. FDI by global airlines in India would be a very welcome step,” said Amber Dubey, director, aerospace for consultancy firm KPMG.

He added: “It will provide access to global funds, routes and management expertise.”

Recently, the three major listed airlines, including Kingfisher Airlines, Jet Airways and SpiceJet reported heavy second quarter losses.

Kingfisher alone reported a net loss of Rs.468.66 crore for the second quarter of the fiscal owing to higher fuel costs and low yields.

The company’s net loss stood at Rs.230.81 crore in the corresponding period of the last fiscal.

The airline, in a regulatory filing in the Bombay Stock Exchange (BSE), said: “The company has incurred substantial losses and its net worth has been eroded.”

Jet Airways too reported a net loss of Rs.713.60 crore in the second quarter from a net profit of Rs 12.40 crore in the same period of the previous fiscal.

Even budget airline SpiceJet was in loss to the tune of Rs.240 crore for the quarter under review. It had posted a net profit of Rs.10 crore last year.

Jet fuel prices have increased by 30 percent since December 2010, and the domestic airlines are expected to lose Rs.3,500 crore in the first six months of this fiscal to Sep 30.

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