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Govt mulls to allow 25% FDI to shore up aviation sector

The government is toying with the idea of allowing foreign airlines to pick up about 25 per cent stake in cash-strapped Indian carriers.

india Updated: Jan 13, 2009 18:27 IST

In the backdrop of the major financial crisis faced by the Indian aviation sector, the government is toying with the idea of allowing foreign airlines to pick up about 25 per cent stake in cash-strapped Indian carriers.

This is one of the proposals being considered by the government. The present FDI policy in aviation does not allow foreign airlines to invest in Indian carriers.

However, no formal decision has yet been taken and the proposal, backed by demands from Kingfisher Airlines promoter Vijay Mallya, is one among several ideas being considered by the government, Civil Aviation Ministry officials said, adding a note of caution that "we may or may not do it".

"Some different measures need to be taken to see that an untoward situation, financial or otherwise, does not arise in the running of an airline," they said, reminding of the early 1990s when several Indian airlines closed down.

As per the proposal, FDI by an airline, with a cap of 20-25 per cent, was "one of the options" being considered, they said, adding that any change in the FDI policy would have to be cleared by the Union Cabinet.

When contacted, Civil Aviation Minister Praful Patel said, "There is no clarity on the issue as yet. It is only one of the options which are being considered."

The officials said that keeping in mind the serious financial difficulties faced by the airlines, the government have asked oil companies to defer by six months the repayment of airlines' dues. Other measures like abolition of five per cent customs duty on jet fuel were also taken.

"What other extraordinary steps can a government take? It cannot write a cheque to a private airline," the officials said, while asserting that there was no "bailout" package being offered to the beleaguered aviation industry.

Asked about Air India's re-capitalisation plan, they said the proposal was "being processed" by the government. "It is owned by the government and like any owner of a company; government should be ready to infuse liquidity into it to make it a viable entity. With a very small liquidity base of Rs 145 crore, it has placed orders worth about Rs 44,000 crore which is absolutely unacceptable," they said.

The 77-year-old airline, which initiated a fleet renewal programme three years ago and merged with its sister airline Indian, has proposed the infusion of Rs 1,000-1,500 crore as equity capital.

It is also looking for soft loans to the tune of Rs 1,000 crore from the government that can be repaid over a period of time.

First Published: Jan 13, 2009 18:25 IST