By Press Note No. 6 (2012 Series) of 20 September 2012 the Foreign Direct Investment (“FDI”) policy on civil aviation was modified, to allow 49% investment of foreign airlines in scheduled and non-scheduled air transport, with the approval of the Foreign Investment Promotion Board (“FIPB”) , and subject to certain conditions.
In addition, any such FDI will require the approval of the Director General of Civil Aviation (“DGCA”). The DGCA has now issued “Guidelines for Foreign Direct Investment in the Civil Aviation Sector” (the “Guidelines guidelines for interpretation of FDI in civil aviation by foreing investing institutions, entities and airlines. The Guidelines are available here http://www.dgca.nic.in/aic/AIC06_2013.pdf.
At the outset, the Guidelines specify that FDI in the civil aviation sector shall be subject to the Aircraft Act, 1934, the Aircraft Rules, 1937, Civil Aviation Requirements, and Aeronautical Information Circulars of the Ministry of Civil Aviation.
THE FDI CAPS FOR THE CIVIL AVIATION SECTOR
|FDI Sector||Investment Cap|
|a) Greenfield Projects
|100% (automatic routes)|
b) Existing Projects
|Till 74% automatic route, beyond 74% till 100% with FIPB approval|
|Air Transport Services|
|a) By foreign institution other than foreign airlines
|i) Scheduled Air Transport Service (“SATS”)/Domestic Scheduled Passenger Airline (“DSPA”)
|Upto 49% – automatic route, and 100% for Non-resident Indians (NRI) – automatic route
|ii) Non-Scheduled Air Transport Service (NATS)/Non-Scheduled Airlines/Chartered Airlines
|Till 49% automatic route, till 74% with FIPB approval, and 100% for Non-resident Indians (NRI) – automatic route
|b) Foreign airlines
|49% through government approval|
|c) Cargo Airlines||Till 49% automatic route, till 74% with FIPB approval, and 100% for Non-resident Indians (NRI) – automatic route
|d) Helicopter services/seaplane services||Upto 100% allowed through automatic route|
|a) Ground Handling Services
||Till 49% – automatic route, till 74% with FIPB approval, and 100% for Non-resident Indians (NRI) – automatic route|
|b) Maintenance and Repair organisations/Flying Training Institutes: and Technical Training Institutions||Upto 100% allowed through automatic route|
The Guidelines sets out the various classes of investors who can participate in the FDI process for various activities
– Indian citizens
– Company or Body Corporate (with its principal place of business in India; Chairman and 2/3rd Directors are Indian citizens; and substantial ownership and effective control is vested in Indian nationals)
For NATS/Non-Scheduled airlines/Chartered Airlines/Helicopter services and Sea Plane services:
– Indian citizens
– Company or Body Corporate (with its principal place of business in India; and the majority of the Board shall be Indian citizens)
Cargo Airlines (Scheduled and Non-Scheduled):
– Indian citizens
– group of individuals of Indian nationality or a registered trust/society
– NRI/Overseas Corporate Bodies (OCB)
– Company registered under the Companies Act, 1956 (having its principle place of business in India; and majority of directors being Indian citizens; with or without foreign equity participation approved by the Government of India)
– Central or State government or entity controlled by the same
KEY TERMS AND CONDITIONS
– Certain management positions (CEO, CFO, COO) if held by foreign nationals will require security vetting of Ministry of Home Affairs, on yearly basis is some cases, and subject to conditions by the Ministry if discrepancies are found;
– The applicant shall give a declaration of the satisfaction of requirements mentioned herein and annually thereafter, and any change shall be intimated within thirty days;
– Information regarding shareholding, board of directors, and senior management of an airline forming part of the foreign investing entity is required to be provided by the applicant.
– The board presence of the foreign investor in SATS/ DSPA shall not exceed 1/3rd of the total.
– Domestic operators shall not give management powers to foreign airlines other than as obtained through the FDI policy. (Not applicable to helicopters/seaplane services or cargo airlines);
– Financial arrangements with financial institutions (including banks, foreign airlines etc.) for loan purposes (not applicable to helicopters/seaplane services or cargo airlines);
– All foreign nationals associated, and all technical equipment imported, through such investment, shall have to receive clearance. (Not applicable to cargo airlines, helicopter and sea plane services);
– A SATS/ DSPA other than those who have FDI by foreign airlines shall not enter into an agreement with a foreign airline, which may give such foreign airline, the right to interfere in the management of the domestic operator.
– A SATS/ DSPA may enter into financial arrangements with a bank and/or other financial institutions including foreign airline for the purpose of lease-finance, hirepurchase or other loan arrangements.
– Wrong information submitted will make the permit granted herein liable to be cancelled/ suspended (shall not apply to helicopter services).
– All technical equipment that might be imported into India as a result of investment be foreign airlines shall require clearance from the relevant authority in the Ministry of Civil Aviation.
MAINTENANCE AND REPAIR ORGANISATIONS, FLYING TRAINING INSTITUTES, AND TECHNICAL TRAINING INSTITUTES
The foreign company planning to set up a maintenance and repair organization, flying training institute or a technical training institute shall have the option of being as an incorporated entity – by incorporating a company under the Companies Act, 1956 through a
– Joint Venture
– Wholly owned subsidiary
Registration and incorporation applications shall be filed with the Registrar of Companies, and Indian laws shall apply.
Such an application/organisation shall require the approval of the DGCA.
Sneha Agnihotri, [email@example.com]