Apr. 12 – The authorization to permit overseas airline companies to invest in Indian carriers is expected to come with an all-inclusive 49 percent ceiling for foreign investments, as the government does not want India’s airlines to be majority foreign owned.

The present policy only stipulates up to 49 percent FDI in scheduled carriers, but does not give any indication on portfolio or foreign institutional investments. As a result, a listed airline company that has 49 percent FDI can have majority foreign holdings if some FIIs acquire stakes in the company. The Indian government gives a hint that it may consider the proposal urgently; all ministries were asked to send in their comments on the proposal by Wednesday afternoon, but so far there is no clarity.

Under the FDI policy if a company has more than 50 percent foreign holdings including FII, FDI, NRI investments and other types of foreign ownership, then it will be considered a foreign company. The policy is also estimated to put FDI in aviation on the approval route to ensure government oversight over the stake acquisitions in airlines because of security issues.

The current policy allows 49 percent FDI in airlines through the automatic route. India’s aviation industry is faced with unparalleled predicament because of high oil prices that it is unable to service. Industry association ASSOCHAM estimates total losses of the industry for the whole year (2011-12) could be as much as Rs. 15,000 crore.

Following the news of the government’s decision to consider a suggestion to have FDI limit in the aviation sector to 49 percent lifted stocks of Indian airline companies in Wednesday’s relatively weak market.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in India. For more information, please contact india@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.