What FDI change means for Air India’s airline arm

At 86, the Maharaja is a hot bachelor for suitors from across the globe with an Indian connection, thanks to the government’s move to allow foreign airlines to be part owners of soon to be privatised Air India.

The Tata-Singapore Airlines (SIA) JV Vistara and Jet Airways, in which Abu Dhabi-based Etihad has 24% stake, can now bid for the airline after this amendment. Vistara CEO Leslie Thng had last week said the airline’s promoters had an open mind for AI if it made business sense.

IndiGo, which has given a formal expression of interest for the airline arm of the Maharaja, can now tie up with a foreign airline to get the long-haul expertise and finances required, to bid for AI. Doha-based Qatar Airways has long wanted to invest in IndiGo and more recently shown interest in having a domestic airline in India.

“Acquiring AI’s flight operations needs solid financial muscle and then running it requires serious expertise in medium and longhaul operations from Day One. Combinations like Tata-SIA, IndiGo with a big foreign airline and Jet with its multiple international airline partners can provide both those things. With the FDI policy for AI, the government shows it is serious for divesting in AI,” said a senior airline official.

Possible bidders like these were waiting for clarification on foreign airlines part-owning AI, as last August, the government had issued a consolidated foreign direct investment (FDI) policy which said that while foreign carriers can own up to 49% stake in Indian carriers, this was “not applicable” to AI. The Modi government has brought AI on a par with private Indian airlines in terms of being eligible to be owned up to 49% by foreign airlines with the condition being that the desi carriers’ substantial ownership and control (SOEC) should remain with Indians and the local JV partner.

Kapil Kaul of Centre for Asia Pacific Aviation feels that the Wednesday decision could lead to “4-6 serious bids for AI subject to bid conditions”.