India to consider foreign investment in airlines

Five of India's six main airlines have reported losses in recent years

India's government will consider a proposal allowing foreign airlines to buy stakes of up to 49% in India's airlines, Minister Ajit Singh has said.

Five of India's six main airlines have reported losses in recent years. They have been particularly badly hit by fuel price rises.

Foreign airlines are currently not allowed to invest in Indian carriers.

Correspondents say that allowing foreign investment will bring much-needed cash for the ailing airlines.

India is one of the fastest growing aviation markets in the world with the number of passengers increasing at between 15% to 20% a year.

But its airlines may lose a total of $2.5bn (£1.63bn) in the year ending March 2012 because of high fuel costs, an economic downturn and price wars, according to a study by the Centre for Asia Pacific Aviation, an industry body.

Safety concerns

A group of senior ministers met late on Tuesday and agreed that foreign airlines be allowed to buy stakes in India's domestic airlines.

"The question was to allow foreign airlines to participate in foreign direct investment (FDI)," Aviation Minister Ajit Singh told reporters.

"I discussed it with the finance minister (Pranab Mukherjee) and he has agreed. We will bring out a note for the cabinet [to approve] now."

Aviation analysts have welcomed the decision, saying it would be a much-needed relief for Indian carriers.

"Apart from the much-needed fund infusion, it would also provide the carriers access to global routes and managerial expertise," Amber Dubey, Indian director of aviation at global consultancy firm KPMG, told AFP news agency.

The move comes nearly two months after Prime Minister Manmohan Singh said the government would find "ways and means" to help ailing carrier Kingfisher Airlines.

Kingfisher - owned by liquor baron Vijay Mallya - recently announced significant losses amid cost concerns for the whole Indian aviation sector.

In September the airline shut its budget carrier, Kingfisher Red, saying it no longer intended to compete in the low-cost market.

Also India's aviation regulator met Kingfisher Airlines and the state-run Air India Express recently after an internal report raised finance-related safety concerns.

The report suggested the ailing airlines might be cutting corners which could have an impact on passenger safety.

Kingfisher and Air India Express both defended their safety standards.