Indian Lobby Group Now Knocks On Prime Minister's Door To Block License To Air Asia

The Federation of Indian Airlines, or the FIA, a lobby group for domestic airlines, has written to the Indian Prime Minister Manmohan Singh to block a license for Air Asia (OTCMKTS:AIABF).

The group had earlier written to the directorate general of civil aviation, or the DGCA, in February to prevent giving a license to Kuala Lumpur-based Air Asia, citing that the industry, which is already in high debt, will be burdened more with a new airline. The DGCA refused their plea. FIA has also stated repeatedly that the foreign direct investment allowed for aviation should be focused on existing airlines rather than an airline new to the country.

"We submit (that the rationale) it did not contemplate the introduction of new international airlines with new Indian Joint Venture partners. By allowing new entrants to invest with new Joint Venture partners, it would defeat the very purpose of the policy itself," Ujjwal Dey, associate director of FIA reportedly wrote in a letter to the prime minister, according to the Economic Times.

FIA had reportedly said that the findings of the DGCA committee which it made to reject its objections of a license to Air Asia were "flawed" and lacked "credible examination."

"The conclusions reached by the DGCA are substantially if not totally incorrect. They have stated that the issue of substantial ownership and effective control has been considered by the FIPB while approving the FDI for M/s AirAsia . This is contrary to the government's own affidavit filed on behalf of all ministries, including the FIPB in the case filed by Dr. Subramanian Swamy challenging the grant of NOC to AirAsia," Dey reportedly added in the letter, according to ET.

The airline industry in India currently has a debt of $12.6 billion and cumulative losses of $8.6 billion into which Air Asia will be entering as a partnership between Tata Sons, AirAsia Berhad and Telestra Tradeplace of Arun Bhatia. In January the DGCA had clarified further saying that a foreign investment into an airline is allowed only until the management control remains in Indian hands.

FIA has even expressed concerns on this in the letter saying: “The members of FIA humbly submit that serious questions relating to the ownership structure and effective control of a foreign airline (AirAsia) in an Indian airline is involved, which have a grave impact on national security," and asking for more investigation into the structure that Air Asia will follow in India, according to ET.