Qatar Airways will face the twin test of complying with India's foreign direct investment norms and opposition from incumbent carriers as it plans to set up a domestic airline.
Government allows 100 per cent foreign investment in a scheduled airline but there are policy contradictions. Sector experts and lawyers say that 100 per cent FDI is applicable only where there is no investment by a foreign airline and thus government would have to modify current rules in order to allow Qatar Airways to set up an airline.
Also existing rule still mandates that substantial ownership and effective control of the airline must vest with Indian nationals.
This mandates that the chairman and 2/3rd of board must comprise of Indian nationals.
This mandates that the chairman and 2/3rd of board must comprise of Indian nationals.
On Wednesday, Qatar Airways chief executive officer Akbar Al Baker announced that the airline in partnership with Qatar Investment Authority will set up a domestic airline in India. This would make it first fully owned foreign airline.
According to a senior lawyer, the government will have to amend the Aircraft Rules, which stipulate that substantial ownership and control must vest with Indians to allow 100 per cent foreign ownership in an airline. Also he said that the government needs to clarify and define the term effective control. “ In the absence of a clarification there is no certainty whether the appointment of Indians on 2/3rd of board postitions will suffice to meet the criteria,” he said.
Ashish Alexander, senior member (M&A practice) and Simone Reis, head (M&A practice) at law firm Nishith Desai Associates believe a foreign airline investing in India may have to additionally provide plans regarding governance frameworks in the airline which would specifically highlight the promoter's plans to ensure that there is Indian management of the airline.
“It is common for foreign Investors to have various holdings or investments within the same industry, and a cross holding does not necessarily imply that the parties are not independent. However, the current FDI policy clearly specifies that the FDI limits / route specified are only applicable where there is no investment by a foreign airline. In the event that this regulation is relaxed and both foreign airlines and foreign investors are allowed to co-invest, foreign investments will have to be scrutinised to ensure that the spirit of the policy (i.e. to limit foreign airlines to a 49 per cent ownership) is maintained, and that a foreign airline does not indirectly gain effective control over a domestic airline,” Alexander and Desai said.
According to Amber Dubey, partner and India head of aerospace and defence, KPMG, there is no reason why 100 per cent FDI in a non strategic sector like aviation can not be allowed on a reciprocal basis as it will help connect India to the world in a bigger way.
The entrenched carriers have been up in arms against any dilution of rules in foreign direct investment. According to sources, SpiceJet CEO Ajay Singh and Jet Airways CEO Amit Agarwal met civil aviation secretary Rajiv Nayan Choubey to request no dilution in norms. Federation of Indian Airlines (FIA) cited international examples saying that no country in the world allows its airlines to be owned by foreign nationals and allowing this would be a departure from international mandate.
“ We should be protective about our own carriers. India I think is the most liberal in granting bilateral rights which harms its own airlines,” says an executive of a FIA airline.