INDIA

LIBERALIZED AIRLINES

OWNERSHIP & CONTROL

DR. SANAT KAUL

REPRESENTATIVE OF INDIA TO
THE COUNCIL OF THE ICAO

MONTREAL, 22ND MARCH,2003

 BACKGROUND
*1920: Beginning of the aviation sector in India.

*1929: JRD Tata, recipient of the ICAO Edward Warner

Award in 1986, launches the first private airline in India.

*1947: India wins Independence.

*1948: ‘Air India International Limited’, formed as joint

venture with the Government of India holding 49%
equity.

*1949: Air India International begins regular flights

between Bombay and London.

2.
 NATIONALIZATION OF AIRLINES
*1953: Parliament enacts the Air Corporation Act,
1953 creating two independent airlines;

“Air India International Ltd ” the international

carrier &
“Indian Airlines Ltd” a largely domestic carrier;

*Private airlines not allowed to function in the domestic

sector.

*Registered foreign international airlines permitted to

enter India.

3.
 INDIA LIBERALIZES HER ECONOMY
*1990: The Government of India decides to
deregulate her command economy structure by
bringing in far reaching reforms.

*1991: Liberalization of the aviation sector.

* The Air Corporation Act, 1953 repealed paving the

way for the opening up of the domestic sector
and the disinvestment of the two public sector
airlines.

* New privately owned domestic airlines start

functioning.

4.
 AIR CARGO POLICY

*1991: India declares unilateral policy of ‘open sky’ for

international air cargo :

* Any foreign operator permitted to carry cargo to and from

India, without restriction on the number of flights and types
of aircraft, to any airport in India with customs and immigration
facilities, even without the existence of bilateral agreements.

5.
 AIR CARGO POLICY (cont.)

* No requirement to comply with national ownership

of aircrafts/company norms.

* ICAO gives due credit to India in Working Paper

10 of the 5th. World Wide Air Transport
Conference beginning in Montreal on Monday,
the 24th of March. We appreciate ICAO’s gesture.

6.
 MANAGEMENT & CONTROL OF
AIRPORTS
*1971: All airports in India came under management &
operation of two Government Authorities.

*1985: All airports were brought under a single

Authority, the Airports Authority of India (AAI) by
Act of Parliament.

*The regulatory control of civil aviation, however,

continues to remain with the Directorate General of
Civil Aviation.

7.
*Proposal to lease metro airports to international
operators to bring them in line with world class
airports.

*Federal Budget 2003 announces tax holidays to

such infrastructure companies.

8.
 GREENFIELD AIRPORTS

*Greenfield Airports opened up to the private sector

at :

 Cochin : operational
 Bangalore : under construction
 Hyderabad : under bidding
 Goa : under planning

9.
 DISINVESTMENT OF AIR INDIA
& INDIAN AIRLINES
*1999: Government of India sets up the Disinvestment Commission
to recommend the disinvestment of Public Sector Undertakings.

*Disinvestment Commission recommends the disinvestment of Air

India & Indian Airlines.

*2000: Cabinet approves proposal for the disinvestment of both

airlines.

10.

8.
 APPROVED PROPOSAL FOR AIR INDIA

* Government to divest 60% of its equity holding

in the following manner:

40% to be divested in the hands of the

Strategic Partner as under:

(a) Up to 26% to be held by the foreign

airline/partner &
(b) Balance of 14% or more to remain in the
hands of the Indian Partner;

11.
*Government to further divest 20% as under:
(a) Up to 10% equity in the hands of the
employees as stock-options through the
instrumentality of a Trust (SPU)
created only to facilitate the process;
(b) Balance equity to be sold to the public
in open offer.

*Government to be left with an equity of

40%,making Air India a Private Limited Company
under the Indian Companies Act,1956.

12.
 APPROVED PROPOSAL FOR
INDIAN AIRLINES
* Government to divest 51% shares in the
following manner:
26% shares to be divested in favor of either an
individual or a group of individuals who are
citizens of India, to be called Strategic Partner/
Joint Venture Partner;

*Of this up to 10.4% as foreign equity & balance as

domestic equity

*Government to offer balance of 25% shares to

Employees, Financial Institutions & the Public.
13.
 APPROVED PROPOSAL FOR INDIAN
AIRLINES (cont.)

*Thus the Government to be left with an equity of

49%, making Indian Airlines a Private
Limited Company under the Indian
Companies Act, 1956.

*Foreign Airlines not permitted to participate

directly or indirectly, in the disinvestment
process of Indian Airlines.
14.
 PROCEDURE FOR DISINVESTMENT

*2000: Global Advisors appointed for both Air India

& Indian Airlines to formulate the modalities of the
actual disinvestment process.

*Global advisors seek “expressions of interest” to

identify prospective Strategic Partners, elicit a
good response.

*Cabinet approves the Share-Purchase Agreement

& Shareholders Agreement.

15.
 PROCEDURE FOR DISINVESTMENT
(cont.)

*‘Security Clearance’ for bidders of Indian Airlines

not accorded by Government.

* Air India gets one bidder.

*Events of 9/11 overtake the disinvestment
process.

*The commitment to disinvestment continues.

16.
 CONCLUSION
*The success of the “open sky” policy in the first
phase of economic reforms in the domestic aviation
sector, international cargo, airport infrastructure &

*The opening of the Airports sector with new ‘Green

field Airports ’to the private sector, is a matter
of satisfaction to us.

* The Disinvestment of shareholding in the two

public sector airlines still remains to be
completed.

17.
 CONCLUSION (contd.)

*However, all steps to accomplish the disinvestment

have been taken in a transparent manner
following due process & procedures.

*It is unfortunate that world events, particularly 9/11

which has affected the aviation sector world
wide in such a catastrophic way has meant that
the disinvestment process of Indian Airlines &
Air India has had to be held back before
completion.

18.
THANK YOU