New investment and operations rules for airlines come into effect

Dashing the hopes of many domestic airlines who are desperate for foreign airline investments, the Government of India has put in to effect new rules governing the investments and operations of scheduled airlines which include fixing minimum levels of equity and barring any investment by foreign carriers.

The rules, which were approved a few months ago, were incorporated recently into the 1994 Civil Aviation Requirements (CARs) issued by the Directorate General of Civil Aviation (DGCA).

As per the new rules, to be applicable for new entrants in the sector, require that applicants for the scheduled airline permit, must have:

• a minimum paid up capital of Rs 50 crore ($10 million); and
• a fleet of five large aircraft
• For each additional aircraft beyond these five, the company should put in additional equity of Rs 20 crore.

The above rules are applicable for aspirants who want to fly 40,000 kg take-off mass or more. However, for firms which plan to fly smaller planes with less than 40,000 kg take-off mass should :

• have a minimum fleet of five;
• have an equity of Rs 20 crore.; and
• add Rs 10 crore to its equity for each addition in its fleet of small aircraft

In both cases, the airlines may not add to its equity base if it has reached the level of Rs 100 crore.

While the new rules allow:

• 49 per cent foreign equity; and
• 100 per cent NRI (Non-Resident Indian) investment through the automatic route

Foreign airlines or foreign institutional investors who are a subsidiary of a foreign airline are not allowed directly or indirectly, in domestic air transport services.

Other highlights includes:

• Import of aircraft on dry or wet lease from foreign airlines is allowed (subject to the government and the DGCA guidelines).
• Allow the operator to outsource maintenance of aircraft to other DGCA approved organisations.
• Prohibit any management contract of a domestic scheduled airline with a foreign carrier, but permit marketing arrangements with them, like ground handling, general sales, code sharing and interlining.