First the much-awaited civil aviation policy and then the liberalisation of the FDI norms – Indian aviation has rarely seen such an action-packed fortnight. These changes can drastically change the competitive landscape in the sector.
One, with the 0/20 rule replacing the 5/20 rule, airlines can fly now abroad if they deploy 20 aircraft or 20 per cent of total capacity, whichever is higher, for domestic operations. Next, allowing up to 100 per cent foreign investment in airlines in India can be a game changer, though it comes with a rider - foreign airlines can still hold only up to 49 per cent. So, for instance, while AirAsia Berhad cannot increase its stake in AirAsia India beyond the current 49 per cent, the Malaysian sovereign wealth fund can invest up to 100 per cent in AirAsia India. This throws up interesting tie-up possibilities. Multiple combinations of foreign airlines and foreign investors even from different countries can start domestic operations in India.
Seen together, these two changes – 100 per cent foreign investment in Indian carriers and 0/20 – could throw open the doors for foreign carriers to tap the huge Indian market, both on domestic and international routes, at least in theory. Here’s how.
A foreign carrier, in tie-up with foreign investors, starts a domestic airline in India or buys out an existing one. Given its deep pockets, this alliance may not have much trouble ramping up its fleet size to 20 in quick time, say in two to three years - this will make it eligible to fly international. This could mean a sharp rise in competition in the coming years.
But there could be many a slip between the cup and the lip. The big obstacle is the rule on substantial ownership and effective control (SOEC). It requires most of an airline’s top management to be Indian to be able to get a flying permit. Government officials have sounded out their intent to change this rule. So, domestic airlines controlled by foreign nationals could become a reality sooner than later.
29/06/16 Anand Kalyanaraman/Business Line
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One, with the 0/20 rule replacing the 5/20 rule, airlines can fly now abroad if they deploy 20 aircraft or 20 per cent of total capacity, whichever is higher, for domestic operations. Next, allowing up to 100 per cent foreign investment in airlines in India can be a game changer, though it comes with a rider - foreign airlines can still hold only up to 49 per cent. So, for instance, while AirAsia Berhad cannot increase its stake in AirAsia India beyond the current 49 per cent, the Malaysian sovereign wealth fund can invest up to 100 per cent in AirAsia India. This throws up interesting tie-up possibilities. Multiple combinations of foreign airlines and foreign investors even from different countries can start domestic operations in India.
Seen together, these two changes – 100 per cent foreign investment in Indian carriers and 0/20 – could throw open the doors for foreign carriers to tap the huge Indian market, both on domestic and international routes, at least in theory. Here’s how.
A foreign carrier, in tie-up with foreign investors, starts a domestic airline in India or buys out an existing one. Given its deep pockets, this alliance may not have much trouble ramping up its fleet size to 20 in quick time, say in two to three years - this will make it eligible to fly international. This could mean a sharp rise in competition in the coming years.
But there could be many a slip between the cup and the lip. The big obstacle is the rule on substantial ownership and effective control (SOEC). It requires most of an airline’s top management to be Indian to be able to get a flying permit. Government officials have sounded out their intent to change this rule. So, domestic airlines controlled by foreign nationals could become a reality sooner than later.
29/06/16 Anand Kalyanaraman/Business Line
