FDI reforms in aviation: Experts hail 'liberal' move

Aviation experts on June 20 welcomed the government's move to allow 100 percent foreign direct investment, saying the decision would help carriers bring in much-needed cash, expand aircraft fleet and adopt best practices.

Under the new FDI norms, foreign investors, barring overseas airlines, can now have up to 100 percent stake in local carriers, while the equity holding has remained restricted at 49 percent.

"A more liberal FDI regime in the sector is expected to settle the much talked about issue of ownership and control at the airlines, in which foreign players have substantial stake," global consultancy KPMG India's Partner and Head for Aerospace and Defence Amber Dubey said.

"Though equity holding of foreign airlines is still limited to 49 percent, a foreign airline can join hands with its sovereign fund or private investors and set up a 100 percent foreign owned airline in India," he said.

He expressed hope that the government would do away with the 49 percent restriction on ownership by a foreign airline in due course.

In the reforms announced on June 20, the government has also permitted 100 percent FDI in brownfield projects through automatic route. Currently, 100 percent FDI is allowed through the automatic route in greenfield airport projects, while it is 74 percent in brownfield ones.

The opening of FDI would help carriers bring in much needed cash, expand aircraft fleet and adopt best practices, he said, adding, "We may see its positive impact over the next 6-12 months." "The avoidable controversies on settling 'ownership and control' issue is now over. Foreign airlines can now focus on the customers and competition rather than wasting time on legal and regulatory issues," Dubey said.

In September 2012, the then UPA government had allowed foreign airlines to invest up to 49 percent in an Indian airline, provided substantial ownership and control (SOEC) remained with Indian nationals. The move paved the way for setting up of two new airlines -- Vistara and AirAsia India -- and investment by Etihad Airways in Jet Airways.

The Indian arm of the Sydney-based aviation think-tank Centre for Pacific Aviation (CAPA) while welcoming the government's decision to "liberalise" FDI regime for brownfield airports, said India needs USD 30- 40 billion capital to modernise airport infrastructure in next 10-15 years.

"However, more clarity must emerge and quickly to take advantage of such positive reforms," CAPA India head Kapil Kaul said.