Saturday, February 01, 2020

Union Budget 2020: A trick to get better deal on Air India, Jet Airways

The country's aviation sector is going through a rough patch and there's an increasing demand that the Centre should bring in FDI (foreign direct investment) to help revive the sector. The combined operating profits of Indian carriers in 2018/19 turned red for the first time since 2015/16. The aviation sector bore the brunt of Air India's failure as it contributed 61 per cent to total operating losses of all airlines put together in 2018/19. The closure of Jet Airways in April last year also left a big dent on the industry as a whole.

While efforts are on to revive both these airlines -- the government has invited bids for Air India with a sweetened deal this time and Jet Airways is undergoing insolvency -- there's a buzz that the government could increase FDI to 100 per cent, which could help them find suitable buyers.

As per Care Ratings, there's a demand for "increasing permissible limit of FDI from 49% to 100% in aviation sector thus helping Air India and Jet Airways find buyers". "In the airline operation, there is an issue of substantial ownership and effective control. Thus, the Civil Aviation Ministry will have to see all these to sell Air India, which would require liberalising FDI in the sector," IANS quoted an official as saying.

Notably, substantial Ownership and Effective Control (SOEC) clause bar overseas companies from taking 100 per cent control of an airline. In her Budget 2019 speech, Finance Minister Nirmala Sitharaman had also said that the Centre could raise the FDI in aviation.

Foreign investments are considered crucial, which needs around billions of dollars for overhauling its infrastructure to boost growth. FDI helps improve the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar.
01/02/20 Business Today

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