The government’s intent to disinvest Air India and making India a hub for leasing aircraft has been clearly reflected in Budget 2019-20.

The Budget speech not only talks about re-initiating the process of the strategic disinvestment of Air India but the intent is also clear as the Budget states that the government will examine suggestions for further opening up Foreign Direct Investment in aviation. The implementation of this proposal will not only benefit Air India but other domestic carriers also. These proposals have been welcomed by those connected with the aviation sector.

Pointing out that there were one or two positive intentions on Air India’s divestment and for the sector as a whole including providing Rs 7,000 crore to service Air India’s debt, Jagannarayan Padmanabhan, Director, CRISIL Infrastructure Advisory, said that the move on FDI could help not only Air India but other airlines also.

L Badri Narayanan, Partner Lakshmikumaran& Sridharan Attorneys, added that liberalisation in this area can be expected especially with this Government’s goal of undertaking strategic disinvestment in various Public Sector Companies including Air India. This liberalisation, along with other incentives for the sector, could attract investments not only in Air India but also other carriers, he further said.

“If the FDI limit in the civil aviation sector is increased then the government can ensure that the entity still remains an Indian entity by ensuring that one-third of the directors on its Board are Indians. The foreign company can set up an Indian arm to own shares,” added an aviation analyst.

Another analyst said that it was possible to infer that the government was now open to allowing foreign airlines to own more than the current 49 per cent in an Indian carrier. “Most foreign airlines will look at a majority stake when investing in an airline. Currently Indian law does not allow this,” the analyst said commenting on what the Budget proposals for aviation mean for an investor.

Hub for leasing aircraft

Kinjal Shah, Vice President and Co-Head, Corporate Sector Ratings, ICRA felt that the proposal to increase FDI in aviation and steps to develop India as a hub for aircraft financing and leasing activities are positives as these will provide access to much needed capital.

An analyst felt that having a SEZ in aircraft leasing would lead to conservation of foreign exchange as millions of rupees are spent in US Dollars for leasing aircraft and paying rentals which can now be made in Indian Rupees. “India can become a hub like Dublin in Ireland for leasing companies to set up businesses in India,” he pointed out.

Having a leasing hub in India will help airlines to better control their costs as they will pay for lease rentals in Indian Rupees rather than their costs fluctuating each time there is a movement in foreign exchange currencies in which the lease rentals are currently calculated.

Related Topics