The Industry Ministry is in favour of allowing foreign airlines to invest in domestic carriers,saying it would help the cash-starved industry to raise equity,an issue that does not find support among many Indian airlines. The Department of Industrial Policy and Promotion (DIPP),an arm of the industry ministry which deals with FDI related matters,has sent several letters to the Civil Aviation Ministry on the issue of allowing foreign carriers to invest. "The Indian aviation industry is in a crisis. If they get equity from foreign players,we should not come in the way," a senior DIPP official said. In response to the DIPP letters,the Civil Aviation Ministry has said that the matter was under their consideration. FDI up to 49 per cent is allowed in domestic airlines or 100 per cent for investments by NRIs,but the policy bars foreign airlines from investing,primarily on security grounds. Also,there is a strong feeling among some major airlines like Jet Airways that fledgling Indian carriers are susceptible to hostile takeovers as they have been passing through a difficult financial period. The proposal to allow foreign carriers to invest in domestic airlines has seen open support only by Kingfisher Airlines promoter Vijay Mallya. But the opponents feel that a foreign carrier,with deep pockets,could play havoc with the domestic market. They could also artificially lower the price of air travel to kill domestic competition. Similar laws barring investment by foreign airlines prevail in several countries,including the US and Canada. The US limits the amount of foreign ownership in its domestic airlines to a maximum of 25 per cent,like its neighbour. A few years ago,the US Congress and the Department of Transportation thwarted attempts to allow foreign ownership of American airlines; it did not allow British business magnate Richard Branson to launch a 100 per cent-owned low-cost airline in the US. Richard Branson's brainchild Virgin America is 75 per cent owned by US-based Black Canyon Capital LLC,with Virgin Group owning the rest. Indian aviation officials,requesting anonymity,said it was important that the country sought reciprocal opening of the airline industry in other countries before allowing open access of the Indian market to foreign carriers. "In an environment where restrictive foreign ownership in the airline industry is the norm,this prohibits foreign carriers from both targeting Indian carriers for acquisition and also using bilateral air service rights to their advantage," the officials said. They also said that the prevailing financial market conditions "do not seem to support" the cash-strapped Indian aviation industry. However,the proponents hold that FDI by foreign airlines should be driven purely by economic considerations. They cite various examples in Europe where airlines have carried out cross-border mergers and acquisitions,like German carrier Lufthansa merging with Swiss International Airlines,and Air France acquiring Dutch carrier KLM.
