Govt may allow part of FDI in domestic airlines

A proposal to permit foreign airlines to pick up stake in domestic carriers is among the several measures being considered by the government to help the Indian aviation industry overcome the financial crunch.

"There are various options before the government as to how to support the (aviation) industry... We already have 49 per cent FDI cap in the aviation sector.

"May be the time has now come to explore whether foreign airlines can be permitted to invest part of that 49 per cent in the domestic sector," Civil Aviation minister Praful Patel told reporters.

Describing it as "only a thought process", he said "no formal decision has been taken, nor any note moved" on the issue.

He said such options were being considered to improve the financial health of the aviation sector and to attract more investment as the "financial markets do not seem to support" the cash-strapped industry at the moment.

Official sources have said the government was toying with the idea of allowing foreign airlines to pick up between 20 and 25 per cent stake in Indian carriers.

While the proposal has been strongly backed by Kingfisher Airlines promoter Vijay Mallya, premier British carrier Virgin Atlantic Airways has also written to the government on the matter several months ago.

However, industry sources said other domestic carriers were not in favour of such a move as they feel that a foreign carrier, with deep pockets, could play havoc with the domestic market by artificially lowering the price of air travel and
cut down competition.

Noting that sky-rocketing jet fuel prices had adversely affected the financial bottomline of the airlines, Patel said the government had taken several measures like abolishing customs duty on it and allowing deferred repayment of dues by airlines to the oil companies.

Asked whether the deadline for airlines to pay back their dues to oil firms would be extended beyond March-end this year, the minister refused to speculate on the issue, saying, "We have tackled the problem as it came. Now the fuel prices are down... We only hope that 2009 will be better."

He said the government has also allowed "price revision of aviation turbine fuel (ATF) every 15 days. This has also helped the sector".

On the FDI issue, the officers had yesterday made it clear that "we may or may not do it" but agreed that some "different measures" needed to be taken to prevent any untoward situation arising in the running of an airline. They reminded of the early 1990s, when several Indian airlines had closed down.

To a question on airport development fee (ADF) proposed to be charged from passengers flying out of the Delhi airport, Patel said the government was considering allowing the GMR-led Delhi International Airport Ltd to charge the fee to meet the shortfall in financing the cost of expanding and modernising the IGI Airport in New Delhi.

The ADF in Delhi would be in operation "temporarily" for two to two-and-a-half years, during which the shortfall can be met.

The user development fees (UDF) is a "long-term measure", which is applicable at the new airports in Bangalore and Hyderabad, and is charged for 15 years.

Earlier addressing a session at the Petrotech conference, Patel underlined the need for focusing research on alternative energy sources.

Patel said a few months before this hike in jet fuel prices, the Indian aviation sector was hoping for a major leap forward. Its growth rate was rising from 25 per cent in 2005 to 30 per cent in 2006 and over 40 per cent in 2007. But the slowdown led to a decline in air traffic by five per cent in 2008.

He said new generation, fuel efficient and environmentally-clean aircraft were now replacing the aged fleet of "gas guzzling" planes.

Referring to nuclear energy, Patel said though India had entered an exclusive nuclear club with the clearance of the IAEA and after signing the nuclear pact with the US, "our energy requirements are so huge that nuclear energy will remain a small part of energy sources for the country".

He said multilateral agreements and cross-border cooperation was essential in meeting future energy requirements of not only India but the entire world.