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Friday, 14 October 2016 05:47
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Air Asia India case will test if policy has really changed


While the new FDI norms in aviation were described as ‘radical’ by the government’s Press Information Bureau’s release on them some months ago, it was odd that though 100% FDI was to be allowed for airlines, the equity holdings of foreign airlines was to remain capped at 49% – the remaining 51% could be bought by another foreign firm as long as it was not an airline firm. This restriction was odd since 100% FDI has been allowed in sectors like telecom, but it could still pass off as ‘radical’ if the 51% could be bought by an affiliate of, say, a Singapore Airlines or an AirAsia which have a 49% stake in joint ventures with the Tatas. But since there were no applications to buy out the Tata stakes, there was no question of being able to test how real the policy change was.


An opportunity now presents itself in the case of AirAsia India, a 49:51 joint venture between the Tatas and Malaysia’s AirAsia Bhd. A case has been filed in court arguing the permission given was illegal on a variety of grounds including the fact that the brand license agreement between AirAsia Bhd and AirAsia India proved that effective management control remained with the Malaysian parent and now with Indian nationals as the law required. A news report in Mint, on Thursday, said the government intended to file an affidavit in the matter saying it was not aware of the relationship between AirAsia Bhd and AirAsia India – effectively, then, the government is signaling the joint venture violates the law.


While AirAsia Bhd had put out a statement saying it complied with the “substantial ownership and effective control” norms, it was always obvious that it had to have strict norms to ensure the airline brand value was not diluted by JV partners in various countries. While the test of whether the controls were limited to the brand value or whether they ensured that effective control lay in AirAsia Bhd’s hands will have to be decided by the courts, the fact is the new FDI norms allow 100% FDI, even if a foreign airline cannot own more than 49%. In such a situation, the issue of “substantial ownership and effective control” being in Indian hands can no longer apply. Should these new norms then be applied to AirAsia India even if the courts rule the brand licensing agreement puts effective control in Malaysian hands? Either way, the case promises to give fresh insights into how – or how little – India’s aviation policy has really changed.



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