The Telegraph
Since 1st March, 1999
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Airline equity rule tightened

New Delhi, Jan. 20: The government has decided to tighten the norms for airlines to make them financially stronger.

Under the new rule, scheduled airlines, with five large aircraft, will be required to increase the subscribed equity capital base from Rs 30 crore to Rs 50 crore.

This has been done to screen out operators who do not have the financial capacity to start or continue in the airline business, top officials said.

“We do not want a situation where airlines start and then close shop all of a sudden as happened in the early 1990s. We want strong airlines with deep pockets.”

The civil aviation ministry decided on the new norm at a meeting held yesterday. It will have retrospective effect for those having aircraft weighing 40,000 kilograms each, which includes Airbus 320s and Boeing 737s or larger aircraft.

While existing airlines will get a year to comply with the new norms, new airlines will have to rustle up the money before they get permission to start.

The government has also stipulated that airlines will have to sink in an additional Rs 20 crore into the subscribed equity capital for every five extra aircraft they induct.

The subscribed equity capital for those airlines owning five small aircraft like turboprop ATRs and Dorniers is also being doubled from Rs 10 crore to Rs 20 crore.

In effect, the move would mean Indian, which has a fleet of 74 aircraft, including six small aircraft, will have to add over Rs 200 crore to its capital base to continue. It has an equity base of Rs 107 crore.

The government may, as a result, either have to quicken the process of merger of Indian with Air-India or soon come out with a public issue for the domestic air carrier.

Similarly, Jet Airways, which has a paid-up capital of Rs 86 crore with 60 aircraft, will have to shore up its equity base by over Rs 150 crore.

The move is unlikely to affect two airlines — Kingfisher, which has a subscribed equity base of Rs 372 crore and a fleet of 23 aircraft and Delhi-based SpiceJet, which has a subscribed equity base of Rs 185 crore and a fleet of 10 Boeing 737s.

The current norms, stipulating equity capital of Rs 30 crore and Rs 10 crore, have been in vogue since March 1994.

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