Air India privatisation: Govt permits NRIs to own up to 100% stake in ailing national carrier; measure not in violation of SOEC norms

Allowing 100 percent investment by NRIs in the crisis-hit Air India would also not be in violation of Substantial Ownership and Effective Control (SOEC) norms.

FP Staff March 04, 2020 16:33:04 IST
Air India privatisation: Govt permits NRIs to own up to 100% stake in ailing national carrier; measure not in violation of SOEC norms
  • Allowing 100% investment by NRIs in the crisis-hit Air India would also not be in violation of SOEC norms

  • The NRI investments would be treated as domestic investments

  • As per the existing norms, 100% FDI is permitted in scheduled domestic carriers, subject to certain conditions

In a bid to speed up the privatisation of the ailing Air India, non-resident Indians (NRIs) will now be allowed to acquire 100 percent stake in the national carrier, Union minister Prakash Javadekar said on Wednesday.

Javadekar said that the Cabinet gave its approval approved allowing NRIs to hold up to 100 percent stake in Air India.

"Today's decision on Air India is one milestone decision where NRIs... will get permission to invest 100 per cent in the airline," Javadekar told reporters briefing about the Cabinet decision.

Allowing 100 percent investment by NRIs in the crisis-hit Air India would also not be in violation of Substantial Ownership and Effective Control (SOEC) norms, reported PTI. The NRI investments would be treated as domestic investments. Currently, they can acquire only 49 percent in the national carrier.

Air India privatisation Govt permits NRIs to own up to 100 stake in ailing national carrier measure not in violation of SOEC norms

Representational image. News18

Under the SOEC framework, which is followed in the airline industry globally, a carrier that flies overseas from a particular country should be substantially owned by that country's government or its nationals.

As per the existing norms, 100 percent FDI is permitted in scheduled domestic carriers, subject to certain conditions, including that it would not be applicable for overseas airlines.

In the case of scheduled airlines, 49 percent FDI is permitted through automatic approval route and any such investment beyond that level requires government nod.

On 27 January, the government came out with a Preliminary Information Memorandum (PIM) for Air India disinvestment. It has proposed selling 100 percent stake in Air India along with budget airline Air India Express and the national carrier's 50 percent stake in AISATS, an equal joint venture with Singapore Airlines.

Under the latest disinvestment plan, the successful bidder would have to take over only debt worth Rs 23,286.5 crore while the liabilities would be decided depending on current assets at the time of closing of the transaction.

This is the second attempt by the government in as many years to divest Air India, which has been in the red for long.

The decision to allow NRIs for owning stake in Air India up to 100 percent comes at a time when the government has sought preliminary bids for 100 per cent stake sale in the national carrier.

Last month, there were reports that billionaire Gautam Adani's energy and infrastructure conglomerate was planning to buy Air India and was pouring into bid documents before finalising a plan.

The mergers and acquisition (M&A) team of Adani Group was scrutinising Air India bid documents and the interest was at a preliminary stage.

Sources said Adani sees synergy in Air India and its airport operations. It last year won bids to operate six airports at Ahmedabad, Lucknow, Jaipur, Guwahati, Thiruvananthapuram, and Mangalore.

The deciding factor for Adani to bid for Air India would be the debt and losses.

The buyer will have to take on a fixed debt of Rs 23,286.5 crore along with certain identified current and non-current liabilities. The airline has been in losses during the last few years.

On 24 February this year, the government had extended the time till 6 March for bidders to pose additional queries regarding sale of its 100 percent stake in Air India.

Early last month, it was reported that the government was working on a proposal to allow 100 percent FDI in Air India as it moved ahead with disinvestment of the national carrier.

In connection with this, the civil aviation ministry had asked the Department for Promotion of Industry and Internal Trade (DPIIT) to remove the clause which restricts FDI in Air India to 49 percent.

The government issued the first set of clarification on Air India disinvestment answering queries of interested bidders on the 'confidentiality undertaking' listed out in the Preliminary Information Memorandum (PIM) issued on 27 January.

Air India and its subsidiary, Air India Express own about 120 aircraft at FY18-end and 126 aircraft till September last year.

After its unsuccessful bid to sell Air India in 2018, the government this time has decided to offload its entire stake. In 2018, the government had offered to sell its 76 percent stake in the airline.

Of the total debt of Rs 60,074 crore as of 31 March 2019, the buyer would be required to absorb Rs 23,286.5 crore, while the rest would be transferred to Air India Assets Holding Ltd (AIAHL), the special purpose vehicle.

The government is offering to sell its entire holding in the loss-making carrier along with its entire interest in its low-cost arm and 50 percent in the ground handling unit.

With PTI inputs

 

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