Airline Industry is not treated at par with rest of the Industries for two reasons 1) The Public International Law provides for nationality of airline and provides for the concept of substantial ownership and effective control vested in the nationals of the state where the airline is registered. This prevents an international airline from 100% FDI ownership. 2) The second reason is the feeling of nationalism as countries consider airlines as a matter of national security and use of civil aircrafts during any emergency. The issue of allowing foreign ownership in India in Airline Sector has been a matter of debate.
Historically worldwide except for the U.S., airlines were always in the public sector the world over. But as slowly and slowly de-regulation started taking hold the airlines were also allowed to go private and thereafter take in foreign private equity including airline equity. However, it remains a matter of concern that the airline industry should go the way shipping industry has gone by the using the concept of flag of convenience.
India also started with concept of private airlines registered in India. In fact at the time of nationalization of Air India and Indian Airlines in the 1950’s there were number of airlines including Air India. It may also be recalled that in November 1947 when airlifting of troops to Srinagar was required after Maharaja of Kashmir signed the Accession Treaty, the Indian Air Force has expressed its inability and recourse to private airlines have to be undertaken. A massive effort was organized after requisitioning all available civil aircrafts. During the Kuwait war in 19___, the two public sector airlines Air India and Indian Airlines were used to evacuate Indians in a major operation which found its way to Guinness Book of Records.
The present issue of allowing foreign direct investment in the Airline Sector and of foreign airlines has been engaging the attention of the government. The government is still not sure whether to allow foreign direct investment in the Indian airlines sector and in specific of investment buyer foreign airlines. If more than 49% of equity is held by foreign nationals then we come in clash with the traditional meaning of a national airline under the international conventions where substantial ownerships and effective control goes to foreign parties within your country. In simple words a foreign party can hold 100% a car manufacturing unit but it cannot own an airline. The US also prohibits more than 49% equity and has permitted non voting equity beyond 49%. In countries like China, Japan ownership of airlines remains within the nationals of the country. Today, there are worldwide alliances of airlines and also cross investment between international airlines. Virgin Airlines of UK has 49% ownership of Singapore Airlines.
Should India allow foreign ownership of airlines in India and also by foreign airlines? This is a moot question because we must prepare ourselves for screening from security angle of the ownership and thereafter change in share holding. In the recent case of Jet Airways, being cash strapped, they have a plan to raise US$ 400 million QIP. The Foreign Investment Promotion Board has stipulated that Jet Airways should ensure that the control of the airline does not shift into the hands of foreign nationals. It has further said that jet must comply with the sectoral cap of 49% FDI within 3 years as proposed in the QIP. Why is QIP so important for Jet?
Historically worldwide except for the U.S., airlines were always in the public sector the world over. But as slowly and slowly de-regulation started taking hold the airlines were also allowed to go private and thereafter take in foreign private equity including airline equity. However, it remains a matter of concern that the airline industry should go the way shipping industry has gone by the using the concept of flag of convenience.
India also started with concept of private airlines registered in India. In fact at the time of nationalization of Air India and Indian Airlines in the 1950’s there were number of airlines including Air India. It may also be recalled that in November 1947 when airlifting of troops to Srinagar was required after Maharaja of Kashmir signed the Accession Treaty, the Indian Air Force has expressed its inability and recourse to private airlines have to be undertaken. A massive effort was organized after requisitioning all available civil aircrafts. During the Kuwait war in 19___, the two public sector airlines Air India and Indian Airlines were used to evacuate Indians in a major operation which found its way to Guinness Book of Records.
The present issue of allowing foreign direct investment in the Airline Sector and of foreign airlines has been engaging the attention of the government. The government is still not sure whether to allow foreign direct investment in the Indian airlines sector and in specific of investment buyer foreign airlines. If more than 49% of equity is held by foreign nationals then we come in clash with the traditional meaning of a national airline under the international conventions where substantial ownerships and effective control goes to foreign parties within your country. In simple words a foreign party can hold 100% a car manufacturing unit but it cannot own an airline. The US also prohibits more than 49% equity and has permitted non voting equity beyond 49%. In countries like China, Japan ownership of airlines remains within the nationals of the country. Today, there are worldwide alliances of airlines and also cross investment between international airlines. Virgin Airlines of UK has 49% ownership of Singapore Airlines.
Should India allow foreign ownership of airlines in India and also by foreign airlines? This is a moot question because we must prepare ourselves for screening from security angle of the ownership and thereafter change in share holding. In the recent case of Jet Airways, being cash strapped, they have a plan to raise US$ 400 million QIP. The Foreign Investment Promotion Board has stipulated that Jet Airways should ensure that the control of the airline does not shift into the hands of foreign nationals. It has further said that jet must comply with the sectoral cap of 49% FDI within 3 years as proposed in the QIP. Why is QIP so important for Jet?
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