The Department of Industrial Policy and Promotion (DIPP) is not in favour of allowing foreign airlines to buy stake in Indian carriers on grounds that it is a critical and sensitive sector. Besides, the view of DIPP is that no other major country permits investment by foreign airlines into their domestic operators.

"It is not allowed in the US, UK or any other major European country. Nobody allows foreign players to take stake in their domestic airlines, so why India should allow," said an official. A section of the domestic airlines industry, facing huge financial crunch, has been demanding opening up of the sector to foreign airlines.

According to the existing policy, while 49 per cent Foreign Direct Investment (FDI) and 100 per cent NRI investment is allowed in domestic airlines, there should not be any direct or indirect participation by any foreign airlines.

Industry sources said that a foreign carrier, with deep pockets, could play havoc with the domestic market by artificially lowering the price of air travel and cut down competition. The Indian airline industry is facing mounting debts due to the economic downturn and excess capacity.

According to an estimate, the cumulative debt of the airline industry stands at about Rs 60,000 crore. As of March, 2010, Air India has about Rs 40,000 crore debt, while Kingfisher Airlines has a debt of about Rs 6,000 crore. Meanwhile, the Reserve Bank of India (RBI) has asked lenders to work out a special concessional package for the crisis-ridden aviation sector.