Friday, December 09, 2011

India: Aviation ministry OK's 26% foreign stake in airlines

The civil aviation ministry has finally given the nod to a draft proposal for foreign airlines to pick up 26 per cent stake in Indian carriers, according to reliable sources. Earlier, the aviation ministry was agreeable to offer only 24 per cent stake to foreign carriers. A stake of 26 per cent gives the foreign investor the right to block special resolutions on the board and thus have a greater say in the carrier's business decisions.

A top official said that the civil aviation ministry had, on December 7, sent its response to a draft Cabinet note to the department of industrial policy and promotion (DIPP), which operates under the commerce and industry ministry.

The proposal has already been given the nod by several ministries, including finance and home besides the Planning Commission. A nod by the civil aviation is the last in the chain of approvals needed for the crucial move to become law soon.

"The voting right will attract foreign airlines and will be an incentive for them. Foreign airlines may not be interested if they are offered less than 26 per cent stake as they will be deprived of the voting right," said an industry official.

Voting right is a right of a stockholder to vote on matters of corporate policy and determine the constituents of the board of directors. Voting often involves decisions on issuing securities (debt), initiating corporate actions and making substantial changes in the carrier's operations.

The issue is now expected to be brought before the Cabinet for formal approval and implementation.

The matter has already generated a lot of heat as political allies of the United Progressive Alliance-led Congress government at the Centre as well as the Opposition have flayed the idea of foreign carriers picking up stakes in Indian carriers.

The finance ministry which has been desperately pushing for 26 per cent FDI in Indian carriers now wants the DIPP to ensure that any such policy conforms to the new takeover code, according to which investors have to go for an open offer if they acquire at least 25 per cent stake in a company. In case of air carriers, the ministry does not want the open offer norm to be made applicable.

In the regard, DIPP has been asked to consult Securities and Exchange Board of India (Sebi), as carriers like Kingfisher and Jet Airways are listed companies.

The new takeover code, brought in by the Sebi in October this year recommends that any acquirer taking at least 25 per cent stake in a company has to go for an open offer for another 26 per cent. If this is the case then foreign airlines taking 26 per cent stake in Indian carriers will see their total stake going up to 51 per cent, which would automatically make them the majority stake holder. The government would want to avoid such situations at all costs.

Sources said that the DIPP is already working on the issue with the Sebi and the matter would be brought to the Cabinet only when it is finally thrashed out.

The government initiated the move to allow 26 per cent FDI by foreign airlines into domestic carriers against the backdrop of Kingfisher slipping into a severe debt crisis and several other Indian carriers laden with high debt on their books.

DGCA cancels 257 unused airline slots

Civil aviation regulator Directorate General of Civil Aviation (DGCA) has cancelled around 257 slots, which were allotted to various airlines in the winter schedule as they are lying unused, civil aviation minister Valayar Ravi told Parliament on Thursday.

Earlier, the DGCA had approved 1,910 slots to various airlines for operating flights during the current winter season beginning October 30. But airlines were utilising only 1,643 slots, Ravi said. Of these, Kingfisher was utilising only 243 slots against the allotted 418, lowcost carriers SpiceJet and IndiGo were using 250 and 259 slots against the allotted 283 and 291, respectively, the minister said.

GoAir and Air India's subsidiary Alliance Air were the only two operators which have been utilising all their slots. Interestingly, just seven slots allotted to national carrier Air India were lying unused despite the carrier making massive losses, the minister said.

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