Corporate Sep 21, 2012
New Delhi: A day after notifying a policy measure to allow foreign airlines pick up 49 percent stake in Indian carriers, the government today said the aviation industry was in an upbeat mood as it was expecting a positive response to the move.
"The aviation sector is going through difficult times and facing financial stress due to the economic slowdown. But the mood is upbeat after the government has allowed 49 percent FDI in domestic airlines," Civil Aviation Minister Ajit Singh said on the sidelines of an Assocham conference on Indian civil aviation sector in New Delhi.
"Time will tell how many foreign airlines evince interest (in acquiring stake)," he said in response to questions.
A week after the Cabinet Committee on Economic Affairs took the decision, government yesterday notified it to permit foreign airlines "to invest in capital of Indian companies operating scheduled and non-scheduled air transport services up to the limit of 49 per cent of their paid up capital."
This would pave the way for much-needed equity infusion in Indian carriers which are in dire need of funds, he said, adding that banks were currently unwilling to give money to the airline industry due to the prevailing financial distress.
Terming the problems faced by the aviation sector as temporary, Singh said the sector was vital for economic growth and was bound to grow with the growth of the middle class as air travel for it was now a necessity.
The minister said in the Winter Session of Parliament, scheduled in November, the government would bring a Bill on setting up of a civil aviation Authority which would revamp the aviation regulator Directorate General of Civil Aviation.
The government was also working on constituting a dedicated Civil Aviation Security Force as the Central Industrial Security Force, currently looking after aviation security, was formed for "a different purpose" to guard all public installations, Singh said.
Stressing that connectivity to Tier II and other non- metro cities which were "growing destinations" was a problem, he said the airlines were unwilling to fly to these places. "The government will nudge them to fly to these cities and also have code-sharing agreement with the regional carriers," Singh said.
Noting that most airlines were acquiring a single type of aircraft to remain cost effective, he said this was also causing problem in increasing connectivity as these airplanes were unable to fly to small cities.
He was referring to larger planes like Boeing 737s and Airbus 320s, being acquired by most of the domestic airlines, not being able to fly to destinations which had shorter runways.
The government would come up with a new aircraft acquisition policy to deal with this problem, he said but did not elaborate.
On lack of adequate aviation infrastructure, he said the government was looking at replicating the public-private-partnership model to develop airports in small cities. There was also a need to build low-cost airports at smaller cities, he said.
The Planning Commission has estimated that in the next five years, Rs 75,000 crore would be spent on development of aviation infrastructure.
Stressing the need for a "transparent" pricing for aviation turbine fuel, Singh said, "High ATF prices, which accounts for 50 percent of airline's operational cost, is a problem area. Since it does not come under the regulatory policy, so its pricing is not transparent."
More From Firstbiz.