THE PROPOSED JOINT domestic-carrier venture between Singapore Airlines (SIA) and the TATA Group has been dealt another major blow by the Indian Government's endorsement of a new aviation policy barring foreign-airline investment.

The cabinet's decision to throw its support behind civil-aviation minister C M Ibrahim's controversial new policy effectively rules out SIA's proposed 40% stake in the planned $600 million start-up.

While the new aviation policy allows foreign companies to hold up to a 40% stake in domestic airlines and non-Indian residents to control up to 100%, it expressly forbids any foreign airlines from taking a stake.

Ibrahim's victory, however, could prove short-lived, as the coalition Government is in danger of collapsing following the withdrawal of Congress Party support.

The SIA/TATA deal has still to be referred to the cabinet's committee on foreign investment, although this is unlikely to occur before a key vote of confidence on prime minister HD Deve Gowda's administration on 11 April.

The removal of Gowda from power by Congress would almost certainly result in his close political ally, Ibrahim, being replaced at the civil-aviation ministry. The policy, if endorsed beyond 11 April, also has major implications for private Indian carrier Jet Airways, 40% of which is collectively owned by Gulf Air and Kuwait Airways.

The Indian Government has unveiled plans to treat the civil-aviation industry as a priority for investment, asking its central bank, Reserve Bank of India (RBI), to include the sector on a list of key "infrastructure" areas such as telecommunications and energy, which are being targeted as crucial to economic development.

The new status, which should be in place by the end of the year, will increase access to large capital loans at concessionary rates. Private airlines, in particular, will now be able to borrow from the RBI at up to twice the previous limit of Rs100 million ($2.3 million).

Source: Flight International