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Saturday 4 July 2020

NRIs allowed to own 100% stakes in Air India

So far, non-resident Indians could buy 100% stakes of a few scheduled domestic carriers in the form of FDI, provided they met certain conditions

The Narendra Modi government on 4 March allowed non-resident Indians (NRIs) to buy up to 100% of the stakes in Air India through the automatic route. Union minister Prakash Javadekar told the press the cabinet had approved the decision to raise the investment limit for NRIs in the privatisation-bound state-run airline from the current limit of 49%. “Regarding the strategic sale of Air India, Non-resident Indians (NRIs) can now acquire a 100% stake in the airlines. Earlier it was 49%,” he said.

The decision empowering NRIs was made in the wake of the government’s effort to sell all the stakes it holds in the carrier nationalised by Jawaharlal Nehru in 1953 through a law.

The government has set a 17 March deadline for submitting bids.

The decision to allow NRIs to possess 100% of the stakes in Air India will not violate the Substantial Ownership and Effective Control (SOEC) norms. This will be treated as a domestic investment.

Under the SOEC framework, followed in the airline industry globally, the owners of a carrier that flies overseas from one country have to be that country’s government or its nationals.

So far, NRIs could buy 100% of some scheduled domestic carriers in the form of FDI, provided they met certain conditions. One of the conditions is that this will not apply to overseas airlines. In the case of scheduled airlines, a foreign direct investor can buy 49% through the automatic approval route while investing more would require government approval.

On 27 January, the Modi government had released a Preliminary Information Memorandum (PIM) for Air India’s sale. According to the PIM, buyers could get 100% stake in Air India, budget airline Air India Express and the nationalised carrier’s 50% stake in AISATS, which is an equal joint venture with Singapore Airlines.

Under the latest privatisation plan, the liabilities for a buyer stands substantially reduced.: a debt worth Rs 23,286.50 crore. However, the liabilities will be calculated on the basis of current assets at the time of closing of the transaction.

This is the second attempt by the government in as many years to disinvest loss-making, debt-ridden Air India, which used to be a profitably run Tata Airlines established by JRD Tata.

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