India to allow 49% foreign ownership of domestic carriers

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India will allow foreign carriers to own up to 49% of domestic carriers, as it seeks to support its ailing airline sector.

In an announcement on 14 September 2012 that took the industry by surprise, India's ministry of commerce and industry said foreign airlines can now buy up to 49% in the country's scheduled and non-scheduled air transport services.

"Removing the existing restriction on investment by foreign airlines would assist in bringing in strategic investors into the civil aviation sector," the ministry said in a statement.

"Higher foreign investment inflows are necessary at the present juncture, in order to strengthen the sector. Introduction of global best practices, concomitant with the induction of FDI [foreign direct investment] from foreign airlines, is expected to lead to higher service standards, international best practices and induction of state-of-the-art technologies, in the air transport sector."

The statement added that the government has been considering this decision "for some time" to improve the financial and competitive position of Indian carriers, which have suffered from a price war and excess capacity in recent years.

"Denial of access to foreign capital could result in the collapse of many of our domestic airlines, creating a systemic risk for financial institutions, and a vital gap in the country's infrastructure," the statement said.

Indian media reports suggest that airline executives and industry observers welcome the change.

Long-suffering Kingfisher Airlines, which has struggled to continue operations in 2012, was quick to issue a brief statement welcoming the government's decision.

"The changes will open up a wide range of opportunities for both Indian carriers and foreign carriers who wish to participate in the strong growth potential for civil aviation in our country," the airline said in the statement. "Kingfisher will now be able to re-engage with prospective airline investors in a more meaningful manner and move towards re-capitalisation and ramp up of operations."