IndiGo, SpiceJet raise red flag over Govt's decision to allow 100% FDI in aviation
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Aviation stocks fall post announcement of 100% FDI IndiGo and SpiceJet have raised "security" concerns over the government's decision to allow 100% foreign ownership by non-airline players in the Indian carriers.
Spicejet CMD Ajay Singh and IndiGo President Aditya Ghosh have recently raised this issue during their meeting with Commerce and Industry Minister Nirmala Sitharaman.
During the meeting, the two airlines said aviation is a "sensitive sector" and the FDI policy relaxation would have "security implications", according to sources.
Spokespersons of IndiGo and SpiceJet could not be immediately reached for comments.
The meeting also assumes significance as the government is considering removal of an anomaly restricting foreign direct investment (FDI) in the civil aviation sector.
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The sector is faced with a Catch-22 situation where a foreign investor, excluding overseas airlines, can acquire up to 100% stake in a local carrier. However, at present they cannot seek a scheduled operator's permit since it can only be given to a company where substantial ownership and effective control is in the hands of Indian nationals.
As this condition restricts and prevents foreign investors from acquiring a domestic airline, there is a need to amend Aircraft Rules, 1937, to facilitate FDI in the sector. Due to this anomaly, the moment foreign investors buy 51% or a controlling stake in a domestic airline, the scheduled air operator permit gets withdrawn.
"So, this sectoral norm needs to be amended," sources added.
As per the current policy, 100% foreign investment is allowed in scheduled air transport service, domestic scheduled passenger airlines and regional air transport. Only non-airline players will be allowed to bring in 100% FDI in local carriers.
Under the new set-up, 49% will be through the automatic route and for anything beyond, government nod will be required. At present, up to 49% FDI is permitted in scheduled airlines.
The government is working to remove all anomalies which are restricting FDI into the country. FDI in 2015-16 grew 29% to $40 billion (nearly Rs 2,66,110 crore).
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