Foreign carriers ordered to divest in India

Foreign carriers ordered to divest in India

NEW DELHI (AFP): India yesterday ordered foreign airlines to withdraw their investments from Indian domestic carriers within six months.

Aviation Minister C.M. Ibrahim said: "Existing companies operating in the domestic air transport sector, in which equity is held by foreign airlines directly or indirectly, will have to disinvest within six months time."

The six-month deadline follows the approval of a new aviation policy unveiled by the Indian cabinet earlier this week.

The policy rules that foreign airlines will not be allowed to invest in domestic Indian airlines, although overseas investors outside the aviation sector can hold up to 40 percent stakes in domestic airlines.

The new guidelines effectively killed off a 708-million-dollar plan by Singapore Airlines (SIA) and an Indian company, the Tata business group, to set up a new airline in India.

The project was first proposed at the start of 1995.

Ibrahim's statement Friday also spelt trouble for another domestic airline, Jet Air. Around 40 percent of the company's equity, held by two Gulf-based airlines, will now have to be sold off.

Ibrahim has argued that investment by foreign airlines in private companies would lead to the destruction of India Airlines, the state-run domestic carrier, which is plagued by chronic labor unrest and financial losses.

However, the minister said 100 percent foreign equity will be welcomed into the domestic airports.

"The government has forwarded a proposal to this effect to the cabinet," Ibrahim said.

To eliminate "non-serious" firms from entering the aviation sector, the minimum fleet size for a "scheduled operator" has been raised from three to five, a move which would hit some seven private carriers here, analysts said.

Ibrahim said all domestic airline companies will have to deploy 10 percent of their capacity in the economically-backward areas of the country such as Northeast, Jammu and Kashmir and Andaman and Nicobar Islands.

He also claimed that Indian Airlines was expected to make a profit of around US$26 million in the year to March 1998 after years of financial losses.

Around 20 private airlines were launched in India in direct competition with the national carrier, Indian Airlines, after the government opened up the industry to the private sector in 1992.