India Gives Nod to 49 percent Foreign Ownership of Air India

by Neelam Mathews

 - January 11, 2018, 2:30 PM

The Indian government hopes direct foreign investment in Air India will help lift the sagging fortunes of the ailing airline. (Photo: Neelam Mathews)

Following a decision to divest a stake in the state-held national airline Air India last year, the government announced on January 10 that it would allow foreign direct investment (FDI) of up to 49 percent in the carrier in an effort to woo global suitors. Though foreign airlines could own up to 49 percent in other Indian airlines, until now the government prohibited any such investment in Air India. The directive makes clear that “effective control of Air India shall continue to be vested in an Indian national.” A foreign stakeholder may not occupy a board seat or exercise any control over major decisions relating to the airline.

Currently, Singapore Airlines and Tata Sons own Vistara, and Malaysia’s AirAsia Group has invested in AirAsia India with Tata Sons.

A report from Sydney-based Center for Aviation (CAPA) last year pointed out that any level of equity retention would raise concerns about the prospect of government interference after privatization. “An outright sale is important as a majority share held by Air India will bring in the same archaic culture and mindset that will not permit change nor progress and the airline will continue bleeding,” a senior airline official said.

Air India’s prime properties, bilateral rights, and slots around the world make it an attractive buy. Government think tank Niti Aayog has, however, warned against any financial support for the chronically loss making carrier.

The government has appointed Ernst & Young as an advisor to Air India. It ill next send invitations seeking expressions of interest in the next eight months.  Some of the interested bidders could include budget IndiGo, Tata-Singapore Airlines, Vistara, ground handling conglomerate Bird Group, and foreign airlines including Etihad Airways, Qatar Airways, and Turkish Airlines. Industry analysts have raised doubts about whether the government would want to sell a stake to the Middle East carriers, given they would likely use India in a hub-and-spoke model, sourcing passengers from India and flying them from their country hubs to connect globally. Etihad has used such a model in its equity partnership with Jet Airways, which some say has lost its identity as a result. 

While Air India has not put up for sale subsidiary Air India Express, Vishok Mansingh, CEO of startup budget TrueJet, told AIN, “We could look at a stake if they decide to sell.”