24 percent cap on FDI by international airlines proposed

"The ministry has proposed a cap of 24 percent investment by foreign airlines in domestic airlines," a senior official said on condition of anonymity. "But the decision lies with the cabinet, as it is a policy matter. The cabinet will take a decision on it in couple of weeks," the official added.

The development came as chairman of cash-strapped Kingfisher Airlines Vijay Mallya pitched for the entry of airline FDI into the domestic sector.

"I am an avid supporter of FDI. I don't see any reason why FDI from strategic partners like an airline should be banned or not permitted. Who would understand an airline better than another airline," Mallya had said at a press conference in Mumbai.
The ministry's decision is even more significant in light of the fact that recently the department of industrial policy and promotion (DIPP) proposed a 26 percent cap.

"Whatever decision the government takes, everyone will accept," the official admitted.

Currently, the government allows for an FDI intake of 49 percent in Indian carriers by non-airline players but bans foreign airlines from directly investing due to security reasons.

Industry sources say the fresh infusion of investment would give a lifeline to the struggling sector which bears the brunt of high jet fuel prices caused by state levies and the high interest cost of their debt.

Jet fuel prices have increased by 30 percent since December 2010, and  the domestic airlines are expected to lose Rs.3,500 crore in the first six months of this fiscal to Sep 30.

Recently, the three major listed airlines, including Kingfisher Airlines, Jet Airways and SpiceJet reported heavy second quarter losses.

Kingfisher alone reported a net loss of Rs.468.66 crore for the second quarter of the fiscal owing to higher fuel costs and low yields. The company's net loss stood at Rs. 230.81 crore in the corresponding period of the last fiscal.

The airline, in a regulatory filing in the Bombay Stock Exchange (BSE), said: "The company has incurred substantial losses and its net worth has been eroded."

Jet Airways too reported a net loss of Rs.713.60 crore in the second quarter from a net profit of Rs 12.40 crore in the same period of the previous fiscal.

"Abnormally high fuel costs, a low fares scenario induced by demand supply imbalance, together with a depreciating rupee versus the dollar and fare cuts have collectively impacted the second quarter performance of Jet Airways," Jet Airways CEO Nikos Kardassis said in a statement.

Even budget airline SpiceJet was in loss to the tune of Rs.240 crore for the quarter under review. It had posted a net profit of Rs.10 crore last year.

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