With the announcement of a new aviation policy by the right-wing Indian government, the civil aviation ministry has reopened the Tata Airlines file.
Tata proposes that foreign institutional investors pay Rs 2.78 billion (US$65.5 million) for a 40 per cent equity stake in the airline, leaving Tata Industries with the remaining 60 per cent. Tata is currently holding discussions with potential investors American International Group and Government of Singapore Investment Corporation.
Tata's proposal looks set to get the go-ahead from the federal government as long as it meets new aviation policy guidelines. 'For a reputed firm which has been part of the development of commerce and industry in this country, there is no need to stop them if they fulfil the mandates of the guidelines,' says civil aviation minister Anath Kumar.
The new aviation policy restricts foreign airlines' involvement with domestic airlines, and eliminates indirect investment by foreign airlines through overseas institutional funds. The policy permits up to 40 per cent equity participation by foreign entities other than airlines.
Under the new policy's guidelines, domestic operators cannot enter into management contracts with foreign airlines but can pursue marketing, ground handling, sales, codesharing and interlining arrangements. The guidelines state that foreign airlines can also perform maintenance, overhaul and repair work on domestic operators and train pilots and engineers. Domestic airlines may enter into financial deals with banks for lease-finance, hire-purchase or other loan arrangements, but not with foreign airlines. Domestic airlines are not allowed to lease aircraft from foreign airlines.
The guidelines add that permission to operate scheduled services will only be granted to either a citizen of India, or a company registered or with its principal business within India, whose chairman and at least two thirds of its directors are citizens of India, with effective control by Indian nationals.
Tata is confident that its proposal does not violate any of the new aviation guidelines. There is no indirect equity participation or control by foreign airlines in their proposed airline nor do they have any management contract with foreign airlines.
The civil aviation ministry has asked all domestic airlines to conform with policy guidelines by 15 July. The guidelines, however, will deal a hard blow to Jet Airways' operations as it now needs to terminate lease contracts for four aircraft, leased from Malaysian Airlines and Ansett. Indian Airlines' subsidiary Alliance Air, which had planned to lease two aircraft from Ansett, is now examining other options. 'This would reduce the options open to the domestic airlines and make availability scarce,' says an Alliance Air spokesman of the new policy.
Source: Airline Business
