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Aviation ministry agrees for 26% FDI in domestic carriers

12 Dec 2011 Evaluate

The Ministry of Civil Aviation has agreed to the proposal of Department of Industrial Policy and Promotion (DIPP), to allow foreign airlines to buy 26% stake in the India private airlines.  The aviation ministry had earlier proposed to a limit of 24% on the Foreign Direct Investment (FDI) by foreign carriers in the initial draft note prepared by the DIPP.

The ministry had originally raised concerns regarding security and predatory pricing by foreign airlines, affecting domestic market. However, the DIPP had proposed 26% foreign direct investment (FDI) by foreign airlines into the domestic industry on the back of Kingfisher Airlines falling into a severe debt crisis and several others facing resource crunch.

Without giving much detail, senior government official said, the civil aviation ministry has come on board for 26% FDI. Currently, government allows 49% FDI in the domestic aviation services like cargo handling however, carriers are not allowed.

Apart from the finance ministry, home ministry and the planning commission too have supported the draft Cabinet note. The ministry of finance has also supported the proposal, however, with condition that such investments should not violate capital market regulator Security Exchange Board of India’s (SEBI’s) guidelines.

Under the SEBI’s takeover Code, an open offer is triggered once an investor acquires 26% stake in listed firm. The size of the open offer required is 25% that would mean that the investor will have to buy extra equity from public.

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