Easing of norms puts national carrier on par with other Indian airline companies
The Centre on Wednesday eased several foreign direct investment norms, including allowing overseas airlines to own up to 49% of Air India and permitting 100% FDI in single brand retail and construction development under the automatic route.
The Union Cabinet allowed foreign airlines to invest up to 49% under the approval route in Air India, “subject to the conditions that: (i) foreign investment(s) in Air India, including that of foreign airline(s), shall not exceed 49% either directly or indirectly and (ii) substantial ownership and effective control of Air India shall continue to be vested in an Indian national.”
The move comes close on the heels of Singapore Airlines and Tata Group evincing interest in bidding for the debt-laden national carrier.
As per the present policy, foreign airlines are allowed to invest under the government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital.
However, this provision was not applicable to Air India. The government, therefore, decided to do away with this restriction.
“Now Air India is on a par with other Indian airline operators with respect to FDI norms,” said Jatin Aneja, partner and national practice head — project & project finance, Shardul Amarchand Mangaldas & Co. “This was much needed in light of the proposed privatisation of Air India and should hopefully bolster the prospects of Air India’s privatisation.”
The changes to the FDI norms would trigger significant interest in the carrier from foreign airlines, Kapil Kaul, CEO, Indian subcontinent & Middle East, Centre for Asia Pacific Aviation (CAPA), said, adding that the actual terms of the offer and conditions attached would determine the level of participation in the bids. “I see four to six serious bids for Air India subject to bid conditions,” he added.
CAPA anticipates that the divestment would help spur more jobs and growth in Air India. “I don’t see any significant near term risks to employees and likely challenges will be addressed by the government,” Mr. Kaul said.
CAPA India, in October 2017, recommended that the government exit Air India completely. “Any level of equity retention will deter investors due to concerns about the prospect of continued government interference post-privatisation,” it had said at the time. “No major Indian corporation from outside of aviation will invest in such a complex project without an experienced strategic partner. Allowing foreign airlines to participate will increase the number of interested bidders and the valuation.”
The government may, however, have to face opposition to its plans to divest stake in Air India. The Parliamentary Standing Committee on Transport, Tourism and Culture, in a draft report, is said to have described Air India as a “national pride” and urged that the airline be “given a chance for at least five years to revive.”