I N D I A

1
I N D I A

• LIBERALIZED AIRLINES
• OWNERSHIP CONTROL
• DR. SANAT KAUL
• REPRESENTATIVE OF
  INDIA TO
• THE COUNCIL OF THE ICAO
• MONTREAL, 22ND
  MARCH,2003

2
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.

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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.

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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• The Air Corporation Act, 1953 repealed paving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.

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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.

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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 ICAOs
  gesture.
• 6.

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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.

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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.

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GREENFIELD AIRPORTS

• Greenfield Airports opened up to the private
  sector at
• Cochin operational
• Bangalore under construction
• Hyderabad under bidding
• Goa under planning
• 9.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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THANK YOU