India eased rules for foreign investment in the country’s aviation sector in a bid to boost air travel and develop new airports in Asia’s third-largest economy.
The new measures allow 100 percent foreign ownership of India-based airlines, raising the limit from 49 percent, but only with prior approval from the government, according to a statement issued by Prime Minister Narendra Modi’s office.
They also allow more than 74 percent foreign investment in brownfield airports, on condition of government approval.
Domestic airline stocks gained with SpiceJet Ltd up 7.4 percent, Jet Airways rose 6.6 percent and InterGlobe Aviation’s IndiGo Airlines ended the day 5.8 percent higher.
“The opening of FDI (foreign direct investment) will help bring in much-needed cash, aircraft fleet and best practices,” said Amber Dubey, partner and India head of aerospace and defence at consultant KPMG.
“We may see its positive impact over the next 6-12 months,” Dubey said.
There has been significant interest from Gulf carriers in Indian airlines.
Etihad Airways invested $379 million in Jet Airways in 2013 following move by the government to open up the aviation sector to FDI.
Qatar Airways, however, has been unsuccessful in its pursuit of a stake in Indian carrier IndiGo. Speaking earlier this year, the airline’s CEO Akbar Al Baker said Qatar attempted to invest at the time of IndiGo’s IPO but government regulations and lack of time prevented the country’s sovereign wealth fund from doing so.
“We had to do it with our parent company, and our parent organisation, which is our sovereign fund, and to do that, we needed more time and the time was too short for us to move on this,” Al Baker said.
Qatar has been linked with investments in various Indian carriers in recent years, including Kingfisher, GoAir and Spicejet. The only real concrete interest for the Doha-based carrier has been IndiGo, the country’s largest and most profitable airline, run by InterGlobe Aviation Ltd.
“If they are interested, Qatar Airways will be very interested,” Al Baker said. “I cannot force IndiGo promoters to sell stake.”
The liberalisation comes days after India announced a new civil aviation policy that eased flying rules for domestic carriers, which no longer need to wait five years to fly overseas as long as they deploy 20 aircraft in the domestic market.
This is a fillip for start-up airlines such as Vistara, 49 percent owned by Singapore Airlines and controlled by India’s $100 billion Tata Group, and AirAsia India, an AirAsia Bhd and Tata venture.
However, there is still some ambiguity on the impact of the new foreign investment rules and analyst opinions are divided.
India has limited the equity holding of foreign airlines to 49 percent, but these airlines can bring in investors such as private equity firms or sovereign wealth funds to establish a 100 percent owned airline in India.
There is, however, still no clarity on whether such an airline would be allowed to fly overseas once it deploys 20 aircraft in India, the world’s fastest-growing aviation market.
“I don’t think this would be applicable or impact present carriers,” said Kapil Kaul, CEO at the Centre for Aviation, a consultancy, adding that for a carrier to fly overseas it needs to have substantial Indian ownership.
He said companies could have two separate entities – one to service the domestic market and the other for international operations but that may not be practical.
“This is a good headline statement but when you get deeper into it, there are fault lines,” Kaul said.
A Singapore Airlines spokesman said the company is happy with the partnership it has with Tata.
“At this point there are no plans for changes to our 49 percent ownership of Vistara,” the spokesman said.
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