Focus on aviation foreign investment in India after Jet-Etihad deal

By Santosh Pai, Vikas Kumar, D H Law Associates

The civil aviation industry is a barometer of prevailing economic sentiment. A disproportionately visible subset of this industry is the airline segment, whose glamour is also a matter of national pride in India. However, the flight path of India’s civil aviation industry has been turbulent.

Notwithstanding its reputation as a wealth destroyer, the carrier segment has witnessed extraordinary growth in India and become one of the largest aviation markets. Indian carriers depend on the external business environment but are also greatly impacted by the government’s policy environment. Policy directives notifying changes in FDI regulations in this industry follow in sync:

  1. the Department of Industrial Policy and Promotion (DIPP) and Ministry of Commerce herald policy change; and
  2. in deference to DIPP policy, the Directorate General of Civil Aviation (DGCA) and Ministry of Civil Aviation amend foreign equity participation guidelines.

    The FDI regime for the civil aviation sector has been progressively liberalised. For this article, we limit examination to air transport/passenger airlines (Indian carriers). In June 2008, FDI up to 49% was allowed under the “automatic route” subject to some significant restrictions, i.e. only foreign financial institutions were permitted to invest in Indian carriers. Foreign airlines were explicitly prohibited from having:

    1. a shareholding interest or management tie-up in Indian carriers; and
    2. loan arrangements with Indian carriers, except for marketing arrangements like ground handling, code-sharing, etc.

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