Up till now, India allowed foreign investment of up to 49% in Indian carriers, but foreign airlines were not allowed to invest directly or indirectly in domestic airlines.
No one was concerned with this issue until Kingfisher Airlines got highlighted. The airline has never made any profits since it launched in 2005. It's debt has crossed Rs 7,500 crore, it is not able to meet its day-to-day expenditure, fuel prices are continuously rising, due to cut-throat competition it can't even raise fares, banks can't lend more due to rising risk of default.
In this scenario, if it gets any strategic partner; who is ready to pick its 26% stake, does it going to solve its problem? Definitely not!
Kingfisher Airlines is a listed company and as per the new rule of Securities Exchange Board of India (SEBI), if company acquire a stake of 25% or more in a listed company, the acquirer has to make an open offer to the public for raising further 26% stake, so this will take a total stake by a foreign acquirer to 51%, which will turn them into a majority shareholder. For sure, Indian government would not let this happen.
Government gave a nod to 26% FDI in aviation sector on the backdrop of worsening situation of the Kingfisher Airlines. Department of Industrial Policy and Promotion (DIPP) is in continuous talks with the SEBI to solve this issue so that our cash-strapped aviation sector can get some sigh of relief.