The Indian Government has again deferred a final decision on plans by Singapore Airlines (SIA) and the TATA Group for a joint domestic start-up airline, in the face of continued strong opposition from civil-aviation minister CM Ibrahim.

Prime Minister H D Deve Gowda's cabinet has instead approved a new domestic-aviation policy, which is serving only to further confuse the situation. Under the policy, drafted by the civil-aviation ministry, local airlines will still be allowed to sell up to 40% of their stocks offshore, but so far only to non-aerospace investors.

"The new policy is contradictory," suggests a senior foreign airline official. "It will allow foreign equity in an Indian airline, but no foreign airline or airport can take a stake. Who else do they think would want to invest in an airline?"

To avert a possible political crisis, Gowda's fragile coalition Government has referred the question of foreign-airline ownership back to the civil-aviation ministry for more consultations. Until the issue is resolved, the proposed SIA-TATA venture will be in limbo.

"The project is not dead; it is deferred," says a source close to the joint venture. SIA's proposed 40% stake in the new airline was recently approved by India's Foreign Investment and Promotion Board and is supported by the ministries of commerce, finance, foreign affairs and industry. Despite this, it is vehemently opposed by Ibrahim, who argues that India's incumbent domestic carriers are threatened with unfair competition (Flight International, 15-21 January).

The final outcome of the debate could have major ramifications for the 20% stakes which Kuwait Airways and Gulf Air each hold in the Tailwinds holding company which controls India's Jet Airways. The remaining 60% stake is held by Naresh Goyal, a non-resident Indian based in London who might also be affected. Other new rules which are certain to have a significant bearing on foreign investment in India include limiting airlines with overseas interests to 20% overall annual projected growth.

"It makes a mockery of the new policy - who is going to invest in an airline on a year-to-year basis?" asks one observer. India's new policy also raises the minimum fleet size for a start-up airline from three to five aircraft. At the same time, restrictions on domestic airlines importing aircraft which seat 50 or more passengers are to be lifted.

Source: Flight International