On the Market Yet Again, Chances of Selling Cash-guzzling Air India May be Hit as Govt Restricts Foreign Airlines
The latest indication of no rethink on foreign airline investment makes it clear that either the government is willing to go through the motions of another sale without being particularly concerned of its success or it has already identified a buyer for Air India.
Illustration by Mir Suhail (News18.com)
New Delhi: One of the anthems of the Modi government in its second term has been to disinvest the cash guzzling airline Air India (AI).
The government has almost turned this proposed disinvestment into a war cry, asserting at every opportunity that it intends to sell off the airline and that this signals its commitment to bold reforms.
It is another matter that the first such attempt at AI selloff in the same government’s first term had bombed — not a single bidder had evinced any interest in buying AI then.
Since then, many stakeholders (including employees and the management) have been fighting rumours of a shutdown and have been assuring creditors and others that the airline is still operational.
The latest flip flop comes in the form of intransigence of the civil aviation ministry over relaxing the 49% cap for foreign airlines to invest in Indian carriers.
According to media reports, the ministry has declined to amend the FDI rules, which mandate that a foreign carrier wanting to invest in an Indian airline can pick up no more than 49% equity stake and must also comply with the substantial ownership and effective control norms.
These norms mandate that not only should the airline being acquired by the foreign carrier continue to operate from India, its key personnel should be Indians and Indians should hold majority equity.
Industry watchers and some people associated with the AI sale process say such continuing restrictions on foreign carriers mean any interested ones wouldn’t get majority control of Air India and this single fact would severely limit the options for the government, once the sale process starts.
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It is interesting to see that during the Budget speech last year, Finance Minister Nirmala Sitharaman had asserted that FDI norms would be relaxed in the civil aviation sector and this had led many to believe that the FDI cap on foreign airlines may be relaxed.
Several times since that Budget speech, unnamed senior government functionaries have been saying that such a relaxation could be considered.
So the latest indication of no rethink on foreign airline investment makes it clear that either the government is willing to go through the motions of another sale without being particularly concerned of its success or it has already identified a buyer for Air India.
Dhiraj Mathur, former partner at PwC, said any such relaxation would require “changes in the FDI policy as well as relevant CARs (civil aviation requirements).
But without those changes, the government will have limited options in Indian companies that have the deep pockets to become a 51% Indian partner to a foreign airline for bidding for Air India”.
Take for example the recent reports of Gulf carrier Etihad being interested in bidding for AI. If the airline was to place a bid, it would now have to mandatorily rope in an Indian partner and agree to the majority ownership and control by that Indian partner in Air India.
But Kapil Kaul, CEO & Director of CAPA South Asia, does not think raising FDI limit beyond 49% is either feasible or permissible “because of the SOEC clause. Hence, this is an unnecessary debate. India can have 100% FDI only in domestic (operations) like Australia but airlines would need to have separate AOPs (air operator permits) for domestic and International. This will also require a separate policy and legal framework”.