Cabinet defers aviation FDI decision to next week

NEW DELHI Thu Apr 12, 2012 3:00pm IST

1 of 5. SpiceJet aircrafts prepare for landing and take-off at the airport in Mumbai July 15, 2008.

Credit: Reuters/Punit Paranjpe/Files

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NEW DELHI (Reuters) - The cabinet deferred on Thursday a much-awaited decision to let foreign airlines buy stake in local carriers and may take up the issue next week, Civil Aviation Minister Ajit Singh said, disappointing investors and sending share prices of carriers down.

Under current rules, foreign airlines are barred from buying stakes in domestic carriers, although foreign investors are allowed to hold a cumulative 49 percent.

Indian airlines, led by embattled Kingfisher Airlines (KING.NS), have long lobbied for the move. However, a brutal Indian market where five of the six big players lose money, as well as tough conditions globally due to high fuel prices and economic weakness, means interest is expected to be muted.

Indian carriers are laden with $20 billion in debt and probably lost $2.5 billion in the fiscal year that ended in March, according to Centre for Asia Pacific Aviation, a consultancy.

National carrier Air India accounts for the bulk of the industry's losses.

India's cabinet Wednesday approved a financial restructuring plan for Air India, which includes equity infusion by the government and restructuring of $4 billion in debt.

India's reputation among global investors has taken a knock over the past year as the government has been beset by crises, including a botched attempt to allow foreign supermarkets into the country and a long-running stand-off with South Korea's POSCO (005490.KS) over a $12 billion steel plant.

Shares in carriers reversed their early gains after the news. Kingfisher and Jet Airways (JET.NS) fell by 4 percent, while SpiceJet (SPJT.BO) dropped 5 percent.

(Reporting by Nigam Prusty, writing by Anurag Kotoky; Editing by Subhadip Sircar)

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