Foreign direct investment

From Wikipedia, the free encyclopedia

Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds.
Contents
[hide]

1 Definitions 2 Types 3 Methods 4 Importance and barriers to FDI

o o o o o

4.1 Foreign direct investment and the developing world 4.2 Difficulties limiting FDI 4.3 Foreign direct investment in the United States 4.4 Foreign direct investment in China 4.5 Foreign direct investment in India

5 References 6 External links

[edit]Definitions
Foreign direct investment has many forms. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intracompany loans.In a narrow sense, foreign direct investment refers just to building new facilities. The numerical FDI figures based on varied definitions are not easily comparable. As a part of the national accounts of a country, and in regard to the national income equation Y=C+I+G+(X-M), I is investment plus foreign investment, FDI is defined as the net inflows of investment (inflow minus outflow) to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. FDI is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward and outward, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.FDI is one example of international factor movements

[edit]Types

1. Horizontal FDI arises when a firm duplicates its home country-based activities at the same value chain stage in a host country through FDI. 2. Platform FDI 3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in different value chains i.e., when firms perform value-adding activities stage by stage in a vertical fashion in a host country. Horizontal FDI decreases international trade as the product of them is usually aimed at host country; the two other types generally act as a stimulus for it.

[edit]Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:

by incorporating a wholly owned subsidiary or company anywhere by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:[citation needed]

low corporate tax and individual income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones EPZ Export Processing Zones Bonded Warehouses Maquiladoras investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation infrastructure subsidies R&D support derogation from regulations (usually for very large projects)

[edit]Importance

and barriers to FDI

The rapid growth of world population since 1950 has occurred mostly in developing countries. This growth has not been matched by similar increases in per-capita income and access to the basics of modern life, like education, health care, or - for too many - even sanitary water and waste disposal. Some argue that FDI when skillfully applied is one of the fastest means of development. However, given its many benefits for both investing firms and hosting countries, and the large jumps in development where best practices are followed, eking out advances with even moderate long-term impacts often has been a struggle. Recently, research and practice are finding ways to make FDI more assured and beneficial by continually engaging with local realities, adjusting contracts and reconfiguring policies as blockages and openings emerge.

[edit]Foreign

direct investment and the developing world

A recent meta-analysis of the effects of foreign direct investment on local firms in developing and transition countries suggests that foreign investment robustly increases local productivity growth. The Commitment to Development Index ranks the "development-friendliness" of rich country investment policies.

[edit]Difficulties

limiting FDI

Foreign direct investment may be politically controversial or difficult because it partly reverses previous policies intended to protect the growth of local investment or of infant industries. When these kinds of barriers against outside investment seem to have not worked sufficiently, it can be politically expedient for a host country to open a small "tunnel" as focus for FDI. The nature of the FDI tunnel depends on the country's or jurisdiction's needs and policies. FDI is not restricted to developing countries. For example, lagging regions in the France, Germany, Ireland, and USA have for a half century maintained offices to recruit and incentivize FDI primarily to create jobs. China, starting in 1979, promoted FDI primarily to import modernizing technology, and also to leverage and uplift its huge pool of rural workers. To secure greater benefits for lesser costs, this tunnel need be focused on a particular industry and on closely negotiated, specific terms. These terms define the trade offs of certain levels and types of investment by a firm, and specified concessions by the host jurisdiction. The investing firm needs sufficient cooperation and concessions to justify their business case in terms of lower labor costs, and the opening of the country's or even regional markets at a distinct advantage over (global) competitors. The hosting country needs sufficient contractual promises to politically sell uncertain benefits versus the better-known costs of concessions or damage to local interests. The benefits to the host may be: creation of a large number of more stable and higher-paying jobs; establishing in lagging areas centers of new economic development that will support attracting or strengthening of many other firms without costly concessions; hastening the transfer of premium-paying skills to the host country's work force; and encouraging technology transfer to local suppliers. Concessions to the investor commonly offered include: tax exemptions or reductions; construction or cheap leaseback of site improvements or of new building facilities; and large local infrastructures such as roads or rail lines; More politically difficult (certainly for less-developed regions) are concessions which change policies for: reduced taxes and tariffs; curbing protections for smaller-business from the large or global; and laxer administration of regulations on

labor safety and environmental preservation. Often these un-politick "cooperations" are covert and subject to corruption. The lead-up for a big FDI can be risky, fraught with reverses, and subject to unexplained delays for years. Completion of the first phase remains unpredictable even after the contract ceremonies are over and construction has started. So, lenders and investors expect high risk premiums similar to those of junk bonds. These costs and frustration have been major barriers for FDI in many countries. On the implicit "marriage" market for matching investors with recipients, the value of FDI with some industries, some companies, and some countries varies greatly: in resources, management capacity, and in reputation. Since, as common in such markets, valuations can be mostly perceptual, then negotiations and follow-up are often rife with threats, manipulation and chicanery. For example, the interest of both investors and recipients may be served by dissembling the value of deals to their constituents. One result is that the market on what's hot and what's not has frequent bubbles and crashes. Because 'market' valuations can shift dramatically in short times, and because both local circumstances and the global economy can vary so rapidly, negotiating and planning FDI is often quite irrational. All these factors add to the risk premiums, and remorses, that block the realization of FDI potential.

[edit]Foreign

direct investment in the United States

Broadly speaking, the U.S. has a fundamentally 'open economy' and very small barriers to foreign direct investment. U.S. FDI totaled $194 billion in 2010. 84% of FDI in the U.S. in 2010 came from or through eight countries: Switzerland, the United Kingdom, Japan, France, Germany, Luxembourg, the Netherlands, and Canada.Research indicates that foreigners hold greater shares of their investment portfolios in the United States if their own countries have less developed financial markets, an effect whose magnitude decreases with income per capita. Countries with fewer capital controls and greater trade with the United States also invest more in U.S. equity and bond markets. White House data reported in June 2011 found that a total of 5.7 million workers were employed at facilities highly dependent on foreign direct investors. Thus, about 13% of the American manufacturing workforce depended on such investments. The average pay of said jobs was found as around $70,000 per worker, over 30% higher than the average pay across the entire U.S. workforce. President Barack Obama has said, "In a global economy, the United States faces increasing competition for the jobs and industries of the future. Taking steps to ensure that we remain the destination of choice for investors around the world will help us win that competition and bring prosperity to our people. It was created at the federal level to showcase the United States as the worlds pr emier business location and to provide easy access to federal-level programs and services related to business investment. SelectUSA provides the following services: business solutions for investors, advocacy, single location promotions, facilitated investment missions, economic development organization counseling, and Ombudsman to help resolve issues involving federal regulations, programs, or activities related to existing, pending and potential investments.

[edit]Foreign

direct investment in China

FDI in China, also known as RFDI (renminbi foreign direct investment), has increased considerably in the last decade, reaching $59.1 billion in the first six months of 2012, making China the largest recipient of foreign direct investment and topping the United States which had $57.4 billion of FDI. During the global financial crisis FDI fell by over one-third in 2009 but rebounded in 2010.

[edit]Foreign

direct investment in India

Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA), driven by then finance minister Manmohan Singh. As Singh subsequently became prime minister, this has been one of his top political problems, even in the current (2012) election. Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010 2012. As per the data, the sectors that attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, US and UK were among the leading sources of FDI. Based on UNCTAD data FDI flows were $10.4 billion, a drop of 43% from the first half of the last year.

[edit]

India: Enlarging The Scope Of FDI In Aviation Sector

14 March 2013
Article by Ashutosh Chandola and Krishna Jhala
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The Cabinet Committee of Economic Affairs ("Committee") on September 14, 2012 approved the proposal of Department of Policy and Promotion ("DIPP") for permitting foreign airlines to make Foreign Direct Investment ("FDI") in the aviation sector. Once the proposal is implemented, the prevailing restriction on foreign airlines from investing in the airline business will be removed. Prior to the change in policy, foreign airlines were permitted to invest and participate in equity only in companies operating cargo airlines, helicopter and seaplane services. The change in FDI shall permit foreign airlines to invest in "scheduled and non-scheduled air transport services." The investment will be allowed under the approval route up to a maximum of 49%. In addition to this, any investment in the aviation sector must also comply with the relevant regulations of Securities Exchange Board of India such as the Issue of Capital and Disclosure Requirements Regulations/Substantial Acquisition of Shares and Takeovers Regulations, as well as other applicable rules and regulations. The announcement by the Committee also lists certain specific conditions which form the basis for permitting FDI up to 49% by a foreign airline. Firstly, for a Company (in which 49% FDI has been allowed ) to obtain a scheduled operator's license, its principal place of business and registered office must be in India, the Chairman and at least two- third of the directors of the company must be Indian citizens and substantial ownership and effective control should be in the hands of Indian nationals. Secondly, any foreign national who will be associated with Indian scheduled or non-scheduled operations, i.e. who will be appointed to the board of the Indian airline which has received FDI, must

also go through and obtain security clearance, presumably from the Ministry of Home Affairs before beginning any work in India. Lastly, the Committee has also mentioned that all import of technical equipment as a result of the investment under the 49% limit must be approved by the Ministry of Civil Aviation. Though these specific conditions have been mentioned, the directives for implementation are yet to be announced and it is likely that these directives will be made public by mid October. From a general reading of the conditions mentioned by the Committee, it is apparent that the grant of FDI to foreign airlines is simply to bolster the ailing Indian Aviation sector by access to another avenue for funds and equity infusion. It is evident that the intention is to ensure that control and management of Indian Scheduled airlines stays in Indian hands. While the permission for FDI by foreign airlines has been long anticipated for rescuing the aviation industry in India, whether this strategy will succeed remains to be seen. In our opinion, introduction of direct investment and involvement by foreign airlines will do much for raising the standards of service in the aviation sector, there is also a possibility, though remote, of cartelization by foreign airlines which may not only render the strategy of the government for reviving the aviation sector ineffective, but also adversely affect the struggling Indian airlines. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

http://www.mondaq.com/india/x/223506/Aviation/Enlarging+The+Scope+Of+F DI+In+Aviation+Sector
Specific Questions relating to this article should be addressed directly to the author.

Air India raises concerns over FDI in aviation

Air India CMD writes to aviation ministry, saying liberalized FDI policy could hurt local airlines
Tarun Shukla

First Published: Thu, Jan 10 2013. 12 18 AM IST

Air India has reason to be worried about its privately run rivals getting a boost from foreign airline investments. The troubled state-run firm is relying on a taxpayer-funded $5.8 billion bailout to stay in business. Photo: Abhijit Bhatlekar/Mint

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New Delhi: State-run Air India Ltd has warned the government that allowing investments by foreign airlines will hurt the interests of domestic airlines and prevent Indian airports from developing into international hubs. The government should study the potential impact of such investment on the domestic aviation sector as a whole, chairman and managing director (CMD) Rohit Nandan wrote in a letter to aviation secretary K.N. Srivastava in December, according to two government officials, who declined to be named. Nandans letter has prompted the aviation ministry to start work on introducing guidelines to address the concerns, but it is unclear how far it can go beyond clearing investments by foreign airlines in domestic ones on a case-by-case basis, one of the two officials said. The guidelines are expected to be ready in a few weeks time. Nandan and Srivastava declined to comment on the matter.

India in September allowed foreign airlines to own up to a 49% stake in local airlines, accepting a demand by cash-strapped domestic airlines to help shore up their capital and reduce debt.
Jet Airways (India) Ltd and Kingfisher Airlines Ltd have since begun stake-sale discussions with

Abu Dhabi-based Etihad Airways PJSC. Last week, Jet indicated it might be closer to a deal with the West Asian airline than Kingfisher, whose licence to fly lapsed on 31 December. Nandan wrote in his letter to Srivastava that the liberalized FDI policy could hurt local airlines because overseas airlines may choose to use Indian airlines mainly as feeder services for their own operations, said the official quoted above. If, for example, the Jet-Etihad deal goes through, the national airline of the United Arab Emirates (UAE) will gain access to Jets entire domestic base of passengers, whom it can fly to the US, Canada and Europe under bilateral aviation agreements between India and the UAE, the official said. And the ambitions of Indian airports to emerge as international hubs would be undermined because foreign airline investors will want to divert the passenger traffic to their own hubs abroad, the Air IndiaCMD was cited as writing in the letter. New Delhi, Mumbai, Hyderabad, Bangalore, Chennai and Kolkata airports have spent more than $9 billion (around Rs.49,500 crore today) on modernization since 2006. The department of industrial policy and promotion has asked the aviation ministry to prepare sectoral limits, but we dont know what can be done, said the second official. Maybe we will take them on a case-by-case basis, he said, referring to investments by foreign airlines in India. Air India has reason to be worried about its privately run rivals getting a boost from foreign airline investments that could undermine its own competitive edge. Troubled by high debt and other operational hassles, the state-run firm is relying on a taxpayer-funded $5.8 billion bailout to stay in business. An immediate threat is the potential Jet-Etihad deal. Air Indias last resort for profitable business is the (Persian) Gulf. Jet has aggressively muscled into that business, and now with combined forces it makes it far more difficult for Air India, said an international analyst who tracks Indias aviation sector, asking not to be identified. It is all a volume gamethe more capacity you offer, the greater your market share is, a greater market share means you can determine prices, which determines profitability, the analyst added. Another expert, disagreeing with Air Indias argument, said it should be left to the market to decide the fate of local airlines.

Most of the countries that allow foreign carrier investments in local airlines are countries with firm capitalistic ideals and practices. It is the survival of the fittest, said Steve Forte, former chief executive at Jet Airways. Etihads investment should result in increased efficiency and strength of Jet Airways, particularly in the international market. While such result is not definite, in my opinion this is what will happen, Forte said. Perhaps it will serve as a wake-up call to the branch of the government that rules over Air India.

http://www.livemint.com/Politics/bIM5qmVBSld8LWnJWG5BcM/Air-India-raisesconcerns-over-FDI-in-aviation.html

Mar 05, 2013, 08.48 PM IST

To continue with 49% FDI, FII in aviation: DGCA guidelines

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After The Bell at 04:00 pm

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Share . Email . Print . A+ Indian aviation sector regulator, DGCA today released guidelines for foreign direct investment (FDI) in the sector. According to the guidelines, the Excerpts from After the Bell on CNBC-TV18 Watch the full show regulator will continue with 49% foreign investment limit in the aviation sector which includes both FDI and foreign institutional investor (FII) investments.

According to the guidelines, all foreign nationals working with the airlines will have to be cleared by the Ministry of Home Affairs (MHA). The guidelines also require majority board directors to be Indian citizens. The FDI policy in the civil aviation sector would be subject to the Aircraft Act and Aircraft rules according to the guidelines. The guidelines come a day before the Foreign Investment Promotion Board (FIPB) takes up the proposal for jointventure between AirAsia, Tata and Arun Bhatia. Tata Group and Malaysia's lowcost carrier AirAsia are looking at launching a new airline in the country. Meanwhile, AirAsia CEO, Tony Fernandes tweeted that the company has selected AirAsia India's CEO who happens to be from Chennai.
http://www.moneycontrol.com/news/business/to-continue49-fdi-fiiaviationdgca-guidelines_834235.html

Thursday, March 7, 2013

DGCA Guidelines for FDI in Civil Aviation Sector

The foreign direct investment (FDI) regime in the civil aviation sector has been progressively liberalized over a period of time. The latest round was effected in by the Department of Industrial Policy & Promotion, Government of India in September 2012 by which foreign airlines are now allowed to invest in the Indian civil aviation sector up to a limit of 49% under the Government approval route. Last week, the Director General of Civil Aviation (DGCA) issued the Guidelines for Foreign Direct Investment in the Civil Aviation Sector which plays the role of operationalizing the revised FDI regime. It deals with the specific rules pertaining to various aspects of the civil aviation sector separately: (i) scheduled air transport service / domestic scheduled passenger airline, (b) non-scheduled air transport service / non-scheduled airlines / chartered airlines, (c) cargo airlines (scheduled or non-scheduled), (d) helicopter services / sea plane services, and (e) maintenance and repair organizations, flying training institutes and technical training institutes. In each of these types of activity, the issues pertaining to direct or indirect FDI, rules regarding management, personnel, information to be submitted to obtain government permissions and similar matters have been extensively dealt with.

The move to allow foreign airline participation has generated a tremendous interest on the part of foreign airlines in the Indian civil aviation sector (here, here and here).
http://indiacorplaw.blogspot.in/2013/03/dgca-guidelines-for-fdi-in-civil.html

FDI-fuelled airline stocks like Jet Airways, SpiceJet, Kingfisher gain altitude since September
ET Bureau Jan 4, 2013, 08.45AM IST

Tags: stocks| SpiceJet| Rupee| Motilal Oswal| market regulator| Kingfisher Airlines| kingfisher| Jet Airways| investments| interest rates| FDI in aviation| FDI| environment| Edelweiss| Chief Financial Officer| capital market| airline stocks

(The Jet Airways stock has)

MUMBAI: Aviation sector shares have reaped a windfall since mid-September last year after the government allowed foreign airlines to buy up to 49% stake in domestic airlines. Shares of aviation companies have since gained between 37% and 65%. These stocks are likely to attract demand in the near-term, said analysts, who anticipate these counters to witness heightened investor activity over the next few weeks. The Jet Airways stock has gained 65% to Rs 606.85, SpiceJet rose 37% to Rs 47.3 and Kingfisher Airlines saw a 40% rise in the stock since September 14.

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Removing the restriction on investment by foreign airlines would help attract strategic investments into the Indian aviation sector, which was until then limited to participation by nonairline investors. Jet Airways is the first company to have commenced negotiations with a foreign airline, UAE's Etihad, for a stake sale. "While the company and Etihad are in a discussion regarding a potential investment by the latter in the former, these discussions have commenced recently, pursuant to the liberalised FDI policy, which permitted foreign investment in the shares of an Indian airline," the company said in a filing to the exchanges on Thursday. Following the announcement, Jet Airways shares rose over 4.7% to Rs 606.85 on Thursday. "The discussions are in progress, but no terms have been firmed up at present. Various structures are being explored by the legal and commercial teams and care is being taken to ensure that all the Indian regulatory requirements are fully complied with," the company said in a statement.

"Most Indian airline companies are in dire need of capital to reduce their huge accumulated losses and mounting debt levels, caused largely by competition induced price wars and rising fuel and capital costs,"Edelweiss had said in a recent note. Experts feel that aviation stocks may be re-rated as demand has been picking up, resulting in improvement in profitability and valuations. "The outlook for the aviation sector has turned positive following an improvement in demand and pricing environment, flexibility to import ATF /hedge ATF purchases and finally the approval for FDI," said Sharan Lillaney, aviation analyst, Angel Broking. "Allowing FDI has turned the bearish tag into bullish and lifted the market sentiment," he added. At the end of FY12, Jet Airlines held accumulated debt of aroundRs 12,128 crore on its books. Jet's reserves and surplus eroded to Rs 44.6 crore in FY12 from Rs 1,540 crore in FY11. Further, Jet Airways has to divest at least a 5% stake by June 13, 2013 to ensure at least 25% public float in the company as per the capitalmarket regulator Sebi's requirement. India's biggest listed carrier will pay $600 million of debt in the year ending March 31, and seek rupee loans with interest rates as low as 10%, chief financial officer Ravishankar Gopalakrishnan said recently in a conference call. Kingfisher Airlines, which has been forced to suspend its operations by DGCA, is on the verge of bankruptcy. Of the listed airlines, SpiceJet's balance sheet is perhaps the healthiest, with the company holding a debt of just over Rs 1,000 crore as on March 31, 2012. "Given SpiceJet's industry positioning and strong balance sheet, it would be a prime target for any international airlines looking to gain a strategic foothold in India, one of the fastest growing aviation markets in the world," said Motilal Oswal in a recent report.

http://articles.economictimes.indiatimes.com/2013-0104/news/36149148_1_foreign-airlines-airline-stocks-aviation-sector

Business confidence in aviation is growing: Ajit Singh

MUMBAI, March 17, 2013

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Civil Aviation Minister Ajit Singh called upon all the stakeholders in the aviation sector to engage in jointly promoting Brand India. File Photo TOPICS transport air transport

Terms it the single most important policy decision that would transform the sector

Civil Aviation Minister Ajit Singh on Sunday termed the 49 per cent FDI in aviation the single most important policy decision that would transform the countrys civil aviation sector. While speaking at the 11th Routes Asia Conference here, he said various policy measures taken by the government had begun to yield results and hoped that the general aviation business would emerge as an important player of regional connectivity and economic development. The Tata-Air Asia proposal and interest shown Etihad are examples of growing business confidence in the Indian civil aviation sector. He said the government liberalised grant of traffic rights to Indian carriers to boost international air travel. The new traffic rights have opened up several new international sectors and increased the traffic entitlements of our carriers by approximately 60 per cent, he said, urging all stakeholders to engage in joint promotion of Brand India. The Minister made it clear that governments thrust on infrastructure development would continue. Indian government expects investment of US $ 12.1 billion during the 12th plan period, of which US $ 9.3 billion is expected to come from the private sector, he said. Besides the four Public Private Partnership (PPP) airports at Delhi, Mumbai, Bangalore and Hyderabad, the Airports Authority of India had modernised Kolkata and Chennai airports and was developing 35 other non-metro airports. The ongoing modernisation and expansion being carried out at the Chhatrapati Shivaji International Airport would enable it to handle up to 40 million passengers annually. The construction of the new international airport to be built in Maharashtra at Navi Mumbai to lessen the burden on the existing airport at Mumbai has been delayed due to objections over land acquisitions. Chief Secretary of Maharashtra Chief Secretary J.K. Banthia said that 70 per cent of the land acquisition for the airport had been completed. The Navi Mumbai airport was originally scheduled to commence operations by 2015-16. Routes Asia is key event for airports, airlines, policymakers and tourism authorities to network and explore growth opportunities. Over 160 international delegates, representing 88 airlines, are participating in the ongoing conference.

http://www.thehindu.com/business/Industry/business-confidence-in-aviationis-growing-ajit-singh/article4519007.ece

Monday, March 18, 2013, 17:00 Hrs [IST]

49% FDI can transform Indian aviation sector: Civil Aviation

Minister
By TBM Staff | Mumbai

Foreign Direct Investment (FDI) of 49 per cent in aviation is the single most important policy decision that would transform the countrys civil aviation sector, said Ajit Singh, Minister for Civil Aviation, Government of India, while speaking at the 11th Routes Asia Conference in Mumbai on March 17, 2013. He said that various policy measures taken by the government had begun to yield results and hoped that the general aviation business would emerge as an important player of regional connectivity and economic development, a report in The Hindu Business Line stated. The Tata Sons -AirAsia proposal and interest shown by Etihad (Airways) are examples of growing business confidence in the Indian civil aviation sector. He said the government liberalised grant of traffic rights to Indian carriers to boost international air travel. The new traffic rights have opened up several new international sectors and increased the traffic entitlements of our carriers by approximately 60 per cent, he said, urging all stakeh olders to engage in joint promotion of Brand India. The Minister made it clear that governments thrust on infrastructure development would continue. Indian government expects investment of USD 12.1 billion during the 12th Plan period, of which USD 9.3 billion is expected to come from the private sector, Singh said. Besides the four Public -Private Partnership (PPP) airports at Delhi, Mumbai, Bengaluru and Hyderabad, the Airports Authority of India (AAI) had modernised Kolkata and Chennai airports, and was developing 35 other non-metro airports. The ongoing modernisation and expansion at the Chhatrapati Shivaji International Airport would enable it to handle up to 40 million passengers annually.

http://www.travelbizmonitor.com/49-fdi-can-transform-indian-aviation-sectorcivil-aviation-minister-19737

New Delhi March 7, 2013 Last Updated at 13:03 IST

FDI in aviation: what's in a comma?

Catch here is whether the comma allows new entities to be created to get foreign investment or are they welcome only in existing airlines See Your Ad On Google
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The AirAsia-Tata joint venture may have got the green signal from the Foreign Investment Promotion Board but the riddle of a comma seems to have caught the bureaucracy. The notification that allowed foreign direct investment up to 49% in companies flying in India says the Government of India has reviewed the position in this regard and decided to permit foreign airlines also to invest, in the capital of Indian companies, operating scheduled and nonscheduled air transport services, up to the limit of 49% of their paid-up capital. The catch here is whether the comma put after Indian companies allows new entities to be created to get foreign investment or are they welcome only in the existing airlines? In the current scenario, bureaucrats sitting in judgement decided to interpret the sentence liberally and give clearance to the venture but a reading of the sentence may suggest otherwise. Grammatically speaking, it appears that the comma here qualifies Indian companies as one already operating. In the current environment, the different interpretation of the rule book could mean either dampening investment climate by sticking to the comma and denying a clearance or changing the language to mean that FDI was approved to bail out ailing domestic airlines.

Disha Kanwar | New Delhi February 2, 2013 Last Updated at 19:31 IST

Post FDI in aviation, investor interest in listed carriers show revival

Stakes of DIIs, including mutual funds and insurance increased by a percentage point in Jet Airways and SpiceJet 3 BHK Apts in Noida Ext.
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Route rationalisation drives Jet Airways profit Jet swings to profit ahead of Etihad deal Jet Airways back in black with Rs 85 cr profit Etihad's 'no fly' zone Jet Etihad 24% deal expected within a week: Jet sources

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With the cabinet's approval of 49 per cent Foreign Direct Investment (FDI) and fuel prices cooling off, the aviation sector is showed signs of revival. With record profits of SpiceJet at Rs 102 crore and Jet Airways at Rs 93 crore in the quarter ended December, foreign institutional investors ( FIIs) increased their stakes whereas FII stake in Jet airways has stabalized. Stakes of domestic institutional investors (DIIs), including mutual funds and insurance increased by a per centage point in both the listed carriers. Mumbai-based Jet Airways, Indias second largest carrier in terms of the number of passengers, saw the stake of FIIs dip slightly from 4.81 per cent in the quarter ended September to 4.27 per cent in the quarter ended December. The stake of FIIs in Sun Group-owned SpiceJet rose from 2.86 per cent to 5.22 per cent. However, in the corresponding period last year, the stake of FIIs in SpiceJet was 3.81 per cent. In past one year, there were three rounds of fund infusion in SpiceJet by its promoters of around Rs 419 crore.In Jet airways, the stake of FIIs was 5.42 per cent. Rashesh Shah, aviation analyst at ICICI securities, says, The increase in FIIs in SpiceJet could be because of the favourable regulatory changes that the aviation sector has witnessed in last couple of months. With the cabinet approving of 49 per cent FDI, cooling off ATF prices, stabalization of rupee and more pricing power with the airlines, there is revival of interest from foreign investors. Not much variation in FII interest is found in Jet airways on a sequential basis. The stock of Spicejet is priced at around Rs 47 and for Jet airways, it hovers around Rs 600.The primary reason for this has been Jets strong international presence. Jet has more international exposure and 60 per cent of its revenues come from international operations and rest from domestic operations. Spicejet has around 7 per cent of the revenues coming from international operations, Shah added. There is more or less stability in investor interest from foreign and domestic investors as with the Jet-Etihad deal going ahead, the future ownership pattern of Jet is still unclear. With the promoter shareholding of around 80 per cent and Etihad expected to buy 24 per cent, how exactly the shareholding pattern will change is yet to be seen. Kingfisher Airlines closure and the Air India employees strike helped other airlines increase load factors and gain ticket-pricing power. Last year, the aviation sector had struggled with high costs of jet fuel, primarily because of high levies on the fuel and high airport charges, especially after private players started operating these. The average tax on jet fuel in India is 24 per cent, second only to Bangladesh (27 per cent). Due to this, fuel costs account for about half the operating cost. In the past year, jet fuel prices rose 40 per cent.

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