* Foreign firms can take up to 49 pct stake in local
* 49 pct limit includes both FDI and FII
* Long-awaited move could help struggling carriers
* India seen as long-term growth market
(Adds riders; minister, industry comments)
By Anurag Kotoky and Nigam Prusty
NEW DELHI, Sept 14 India decided to allow
foreign airlines to buy stakes of up to 49 percent in local
carriers, a long-awaited policy move that could provide a
lifeline to the country's debt-laden airlines by opening up a
fresh source of funding.
The move, which comes with conditions, is a part of massive
big-ticket reforms announced by India on Friday, including
opening up its supermarket sector to foreign firms, as it seeks
to revive economic growth and avoid a ratings downgrade.
"This is a very positive step," said Amber Dubey, head of
aviation at KPMG. "I do not expect a flurry immediately ... but
there will be interest. A lot of people have been watching."
Ailing Kingfisher Airlines, which was India's No.
2 local carrier a year ago but has since grounded most of its
fleet, has lobbied hard for this move on hopes that it can
attract a foreign airline investor, although none has publicly
Kingfisher, whose fortunes hang on its ability to raise
funds soon, said the move will allow it to re-engage with
prospective investors in a "more meaningful manner."
"This will open up a wide range of opportunities for both
Indian carriers and foreign carriers who wish to participate in
the strong growth potential for civil aviation in our country,"
Kingfisher, controlled by liquor baron Vijay Mallya, said.
Newly affluent Indians, with increasing disposable incomes,
have started treating flying as a mode of transport rather than
a luxury, providing a massive local market.
"It sends a clear message to the sector which was under
financial stress - now even the banks would look at them
favourably," civil aviation minister Ajit Singh said.
However, any global carrier eyeing a stake in an Indian
carrier must weigh up the benefits of a market with high
long-term growth potential but one that has been squeezed by
high costs and fierce price competition.
EASED RULES WITH RIDERS
The relaxed rules do come with some riders, said Singh.
Interested companies will have to get clearances from
Foreign Investments Promotions Board and the ministry, and three
quarters of their directors have to be Indians, Singh said.
"They will have to follow all the rules like plane
acquisition, and route disbursal laid down by the ministry,"
The 49 percent limit includes both foreign direct investment
and foreign institutional investment, according to a government
document seen by Reuters.
"The results are unlikely to be immediate ... Just because
they are now allowed to invest does not necessarily mean that
they will," the Centre for Asia Pacific Aviation, a consultancy,
Budget carrier SpiceJet, the fourth-largest of
India's six main airlines, said on Thursday it was in initial
talks with several Gulf carriers and was waiting for the
government to ease rules before it takes a final call.
With global airlines buffeted by the European debt crisis
and high fuel costs, cash-rich and fast-growing Gulf carriers
such as Dubai's Emirates, Qatar Airways and Abu
Dhabi's Etihad are seen as the most likely buyers of stakes in
Indian carriers, analysts say.
Boeing Co raised its forecast for the Indian plane
market on Tuesday, saying the South Asian country would need
1,450 new aircraft worth $175 billion by 2031.
(Additional reporting by Rajesh Kumar Singh in NEW DELHI and
Henry Foy in MUMBAI, editing by Rosalind Russell)