Govt likely to decide on aviation FDI on Thursday - official

A passenger aircraft is silhouetted against the setting sun in New Delhi October 12, 2008.

NEW DELHI (Reuters) - The government is likely to decide on a proposal to allow foreign carriers to invest in local airlines as early as Thursday, a senior government official said, which could provide a lifeline to cash-starved and debt-laden carriers like Kingfisher Airlines (KING.NS).

"The decision is imminent," said the official at Department Of Industrial Policy and Promotion, referring to a proposal to allow foreign carriers to invest in local airlines.

"It may be as soon as Thursday."

He, however, declined to say what the proposed foreign investment cap would be.

Indian airlines have been battered by rising fuel costs, high taxes and fierce competition in a market where five of the six main operators are losing money.

India currently bars foreign airlines from picking up stake in Indian carriers, although foreign investors are allowed to hold a cumulative 49 percent.

The country's civil aviation ministry had in January recommended that the government allow foreign airlines to buy stakes of up to 49 percent in Indian carriers. The proposal, however, needs approvals from the trade ministry and the union cabinet to become law.

Kingfisher Airlines, which has a debt load of $1.3 billion, has said foreign airlines have expressed interest to invest in the company, and that those investors are just awaiting a formal government approval.

Kingfisher shares, which were down as much as 4.6 percent earlier in the day, closed 7.5 percent up at 18.60 rupees on Tuesday on the National Stock Exchange.

(Reporting by Matthias Williams; writing by Anurag Kotoky; editing by Malini Menon)