According to the Cabinet Committee on Economic Affairs (CCEA), removing the existing restriction on investments by foreign airlines will assist in welcoming strategic investors into the civil aviation sector. “Higher foreign investment inflows are necessary at the present juncture, in order to strengthen the sector. Introduction of global best practices, concomitant with the induction of FDI from foreign airlines, is expected to lead to higher service standards, international best practices and induction of state-of-the-art technologies, in the air transport sector,” the CCEA said.
Vijay Mallya, Chairman, Kingfisher Airlines, hailed the decision to allow 49 per cent FDI in airlines by foreign carriers as bold and fantastic. Jet Airways also welcomed the move. IATA India sees this as a forward step for the Indian aviation industry, while also drawing attention to various problems plaguing it. “This allows Indian carriers to have strategic tie-ups with foreign airlines, cemented by an equity stake. But allowing FDI by foreign airlines by itself is not a panacea. The critical problems of a high cost environment, insufficient infrastructure and crippling taxes must also be comprehensively addressed within a coordinated government-wide policy framework,” opined Amitabh Khosla, Country Director – India, IATA.
Amber Dubey, Partner and Head-Aviation, KPMG, a global consultancy firm, added, “This move will create access to capital, global connectivity, technology and best practices. This could lead to the establishment of new airlines in India, and perhaps, a change in the ownership structure of certain Indian carriers. All this augurs well for Indian passengers. Increased competition would lead to better offerings, greater efficiency, cheaper airfares and more power to the passenger.”
According to Dubey, concerns have been raised about price undercutting by global carriers, losses to Indian carriers and threat to national security. “FDI has been allowed in more sensitive sectors, and Indian companies have only emerged better and smarter. MoCA, DGCA and CCI would be keeping an eye out for predatory undercutting of airfares. The proposed guidelines talk of the chairman and two-third of the board members being Indian nationals. All foreign board members and global equipment will require security clearance. Thus, most of the fears appear to be a bit overstated,” Dubey said, adding that it would also pave the way for Indian carriers to buy stakes in global carriers some day.
There is a buzz in the market that Kingfisher Airlines may resume talk with Qatar Airways and Etihad Airways to divest some stake in the carrier. However, Etihad came with a clarification stating that it has identified equity investments in other airlines as an important evolution of their successful partnership strategy.
British Airways said that India is a key market for them and it will monitor the changing regulatory environment. “But at this stage, we have no plans to invest in any Indian airlines,” it revealed in a statement. Emirates, without divulging any stake acquisition plan, also welcomed the decision.
