India allows 100% foreign ownership in airline firms

New Delhi / Bloomberg

India will allow foreign entities such as funds and portfolio investors to fully own local airlines, raising from an earlier cap of 49 percent, in a bid to lure investment into Asia’s third-biggest economy. Shares of InterGlobe Aviation Ltd., Jet Airways India Ltd. and SpiceJet Ltd. rallied.
Foreign investment limits in commercial airlines will be increased to 100 percent, with anything above 49 percent needing approvals, the government said in a statement on Monday. Prime Minister Narendra Modi’s administration, however, decided to keep the restrictions on foreign airlines’ stake in local operators at 49 percent.
The rule changes follow days after Modi unveiled a new aviation policy that made it easier for domestic operators to fly abroad. Although the revamp won’t allow Singapore Airlines Ltd. or AirAsia Bhd. or Etihad Airways PJSC to raise their stakes in local ventures beyond 49 percent, they can still join hands with overseas investors to set up a fully foreign-owned airline, said Amber Dubey, a consultant at KPMG.
“The government plans to go for a massive improvement in India’s global and domestic connectivity, affordability and ease of doing business,” said Dubey. “Indian carriers can look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment. We may see its positive impact over the next six to 12 months.”
IndiGo, operated by InterGlobe, rallied 6.3 percent, the biggest gain since April 4, while SpiceJet jumped 7.5 percent. Jet Airways, 24 percent owned by Etihad, surged 7 percent, the most in more than four months.
The government also raised investment limits on investment in existing airports as well as defense. The cap on investment in so-called ‘brownfield projects’ has been increased to 100 percent from 74 percent, without the need for approvals, according to the statement. The government also allowed foreign investment beyond 49 percent in defense, subject to approval in cases that help bring in “modern technology,” according to the statement.