I N D I A OWNERSHIP & CONTROL DR. SANAT KAUL LIBERALIZED AIRLINES 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 * The Air Corporation Act, 1953 repealed paving the way for the opening up of the domestic sector and the disinvestment of the two public sector airlines.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.

MANAGEMENT & CONTROL OF AIRPORTS (cont.) *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.

APPROVED PROPOSAL FOR AIR INDIA (contd.) *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