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Corporate Mar 7, 2013

AirAsia JV gets in-principle nod but FDI guidelines may complicate deal

By Sindhu Bhattacharya

New Delhi: AirAsia's proposal to start a fresh airline in partnership with the Tatas and Bhatias has been given an in-principle approval by the Foreign Investment Promotion Board (FIPB).

Top officials in the Ministry of Civil Aviation told Firstpost that the clarification this ministry has sought from the Department of Industrial Policy and Promotion (DIPP) over whether the proposal falls under the Government's guideliness on FDI in aviation should "come very quickly, in a day or two at best".

AFP

Malaysian airline AirAsia Bhd has said it wants to take 49% equity in the new airline, with Tata Sons holding 30% stake and the remaining 21% being held by the Bhatias. AFP

Thereafter, the three partners are expected to set up a new company and approach aviation regulator DGCA for a flying permit.

Their doubt stems from the wording of the FDI guidelines which have permitted foreign airlines to invest in Indian carriers up to 49%. These guidelines do not specify whether such an investment can also come in a new company which has yet not been set up.

"We have sought this clarification and DIPP has said it will be issued soon. This issue will be sorted out fast, we want the airline to get all possible assistance," the officials said.

They also made it clear that as per present rules, the new company must possess at least 5 aircraft and have a paid-up capital of Rs 50 crore if these aircraft are more than 40 tonnes in weight. Also, for each subsequent fleet expansion of 4 aircraft, the paid up capital must go up by Rs 20 crore.

The officials made it clear that there will be a very close scrutiny of the new airline's proposal for a flying permit in terms of the minimum paid up capital and aircraft mandated and also whether it meets the other norms of FDI in aviation. "We will ensure compliance with rules which require that the foreign partner has only one-third representation on the airline's board of directors and that substantial ownership and control of the airline stays with Indians are complied with. Let the proposal come to us, we will examine it closely".

Malaysian airline AirAsia Bhd has said it wants to take 49% equity in the new airline, with Tata Sons holding 30% stake and the remaining 21% being held by the Bhatias. The Tatas have made it clear that they won't be involved in the functioning of the airline.

by Sindhu Bhattacharya

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