February 21, 2024

Foreign Direct Investment (FDI) Policy in Civil Aviation

India’s civil aviation sector has undergone significant transformation in recent years, fueled by liberalization measures and strategic policy interventions. India’s air travel industry has changed a lot lately because of new rules and government decisions. One big part of this change is how foreign companies can invest in Indian airlines. This policy is really important for how the industry grows.

The 49% cap will cover FDI in civil Aviation Foreign portfolio Investment and other kinds of investment To be eligible for a tax deduction, investment must meet all applicable requirements of India’s Securities and exchange Board of India.

FDI in Civil Aviation Means the business of transporting passengers and goods by aircraft, rather than the use of aircraft for military purpose.the Civil Aviation Sectors includes Airport,Schedule and Non Scheduled Domestic Passengers airlines, Helicopter Services, Ground Handling Services, Maintenance and repair organizations, Flying Training institutes and technical training institutes.

1. Threshold Limit of FDI (Foreign Direct Investment)

As per updated Policy issued by Department of Industrial Policy and Promotion (DIPP) vide ‘Consolidated FDI Policy’, details of FDI policies on Civil Aviation is given below:

a. AIRPORTS

Sector/Activity	% of Equity/ FDI Cap	Entry Route
Greenfield projects	100%	Automatic
Existing projects	100%	Automatic

b. AIR TRANSPORT SERVICES

Sector/Activity	% of Equity/ FDI Cap	Entry Route
(1) (a) Scheduled Air Transport Service*/ Domestic Scheduled Passenger Airline(b) Regional Air Transport Service	100%	Automatic up to49% (Automatic up to 100% for NRIs)Government route beyond 49%
(2) Non-Scheduled Air Transport Services	100%	Automatic
(3) Helicopter services/seaplane services requiring DGCA approval	100%	Automatic

*As per Schedule XI of Aircraft Rules, 1937, A company or body corporate can get an Air Operator Certificate to run scheduled air transport services, like domestic passenger airlines or regional air transport, subject to certain conditions.:-

it is registered and has its principal place of business within India;
the Chairman and at least two-thirds of its Directors are citizens of India; and
its substantial ownership and effective control is vested in Indian nationals

c. OTHER SERVICES UNDER CIVIL AVIATION SECTOR

Sector/Activity	% of Equity/ FDI Cap	Entry Route
(1) Ground Handling Services subject to sectoral regulations and security clearance	100%	Automatic
(2) Maintenance and Repair organizations; flying training institutes; and technical traininginstitutions	100%	Automatic

2. Definitions

The Civil Aviation sector covers airports, both scheduled and non-scheduled domestic passenger airlines, helicopter/seaplane services, ground handling services, maintenance and repair organizations, flying training institutes, and technical training institutions.

For the purposes of the Civil Aviation sector :

“Airport” An airport is a designated area for aircraft to land and take off, equipped with runways, maintenance, and passenger facilities. It also includes aerodromes as defined in the Aircraft Act, 1934.
“Aerodrome” An aerodrome is a specific ground or water area used for aircraft takeoff and landing, including associated structures and facilities.
“Air transport service” means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or multiple flights;
“Air Transport Undertaking” means an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward;
“Aircraft component” means any part essential to aircraft safety and airworthiness, including equipment.
“Helicopter” means an aircraft lifted by one or more vertically-oriented power-driven rotors.
“Scheduled air transport service” means regular flights between the same locations, following a published timetable and open to the public.
“Non-Scheduled air transport service” means any service which is not a scheduled air transport service;
“Seaplane” means a plane that can only land and take off from water.
“Ground Handling” includes ramp handling, traffic handling, and other activities specified by the Central Government.

3. Other Conditions

Air Transport Services would include Domestic Scheduled Passenger Airlines; NonScheduled Air Transport Services, helicopter and seaplane services.
Foreign airlines can invest in cargo airlines, helicopter, and seaplane services as per specified limits and entry routes.
Foreign airlines can invest up to 49% of the paid-up capital in Indian companies operating scheduled and non-scheduled air transport services, subject to specified conditions.
- Requires government approval.
- The 49% limit includes FDI and FPI investments.
- Investments must comply with SEBI regulations like ICDR and SAST, as well as other relevant rules.
- All foreign nationals likely to be associated with Indian scheduled and non scheduled air transport services must pass security clearance before deployment.
- All Imported technical equipment resulting from the investment needs clearance from the Ministry of Civil Aviation.
In addition to the above conditions, foreign investment in M/s Air India Ltd. shall be subject to the following conditions:
- Foreign investment in Air India Limited, including from foreign airlines, capped at 49%, except for NRIs who are Indian Nationals, where up to 100% is allowed under automatic route.
- Substantial ownership and effective control of Air India Limited must remain with Indian Nationals as per Aircraft Rules, 1937.
FDI in Civil Aviation is subject to provisions of Aircraft Rules, 1937, as amended from time to time.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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