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India to Allow Foreign Airline Investments


The Indian government says that it will soon launch a process that will allow foreign airlines to hold up to a 49% stake in the nation's carriers. This had been a major demand from the struggling aviation industry. Civil aviation minister Ajit Signh said after a meeting with finance minister Pranab Mukherjee that the question was if foreign airlines should be allowed to participate in foreign direct investment (FDI). He and Mukherjee discussed this and agreed that they should. The Cabinet will now vote on the matter.

Granting foreign carriers permission to buy stakes in Indian airlines will mark a major shift in policy for India. Currently, foreign airlines are only able to participate in FDI in other companies. Signh says 49% FDI is there already, and the question is if international airlines should be allowed to participate in it. The Committee of Secretaries has recommend that the limit of FDI be increased to 49%, he noted. FDI is one of the factors that will help the aviation industry survive the current financial crisis. They all know that the industry is being put under much stress.

Additionally, Signh and Mukherjee decided in a meeting that Rs 150 crore will be immediately released for payment of a portion of pending salaries and allowances for Air India staff, including pilots. Signh says the government has decided to release enough funds to pay at least part of the workers' wages and productivity-linked incentives (PLI). They have agreed that this should be done soon, so not too long from now. The money is basically coming from what the government owes to the carrier.

However, this will be just the first part of the payment, as the total owed is around Rs 600 crore, Signh notes. Several ministries have to pay for the cost of VVIP travel, and some still need to approve the payout, so he will talk to those head ministers.

In regard to debt restructuring at Air India, Signh said that a formal meeting of GoM will likely take place next week, when they will consider the plan. The carrier has also recently demanded that direct jet fuel imports be allowed, and the minister says a committee of secretaries has recommended this be approved. If this is the case, airlines won't have to pay sales tax, but the issue will be put before the GoM. Air India has an outstanding Rs 67,520 crore worth of loans and dues – Rs 4,600 is for vendor dues, Rs 20,320 crore is for accumulated losses, Rs 21,200 is a working capital loan and Rs 22,000 crore is a long-term loan for fleet acquisition. The carrier has been struggling to stay afloat for months now.