GoM to look into foreign capital in domestic airlines

January 13th, 2012 - 10:24 pm ICT by IANS  

Manmohan Singh New Delhi, Jan 13 (IANS) A group of ministers (GoM) is expected to meet next week to look into the demands raised by some of the major airlines to allow foreign capital and to import jet fuel directly, informed sources said Friday.

The development comes after a committee of secretaries proposed a cap of 49 percent foreign direct investment (FDI) by foreign airlines. The commerce ministry’s department of industrial policy and promotion (DIPP) had recommended a 26 percent cap.

“Private airlines in the country are in need of funds for operations and service upgradation to compete with other global carriers,” the DIPP note said.

Currently, the government allows for FDI up to 49 percent in Indian carriers by non-airline players but bans foreign airlines from directly investing due to security reasons.

The issue of FDI from foreign airlines was also raised by airlines chiefs’ when they met Prime Minister Manmohan Singh on Nov 26, 2011.

According to sources, the GoM will review airlines’ demands for permission to directly import aviation turbine fuel (ATF), there by escaping high sales tax imposed by state governments that can vary from three to 35 percent.

Earlier, Kingfisher Airlines chairman Vijay Mallya said that his company had officially applied to the commerce ministry for direct import of fuel.

“We have applied officially to the ministry of commerce for direct import of fuel, and if we import fuel directly for our own use we become an actual user, and therefore, we don’t pay sales tax,” Mallya said addressing a press conference here.

Owing to high jet fuel and interest costs three major airlines — Kingfisher, Jet and SpiceJet — have reported heavy second quarter losses.

Kingfisher Airlines alone reported a net loss of Rs.468.66 crore, owing to higher fuel costs and low yields.

The company’s net loss stood at Rs.230.81 crore in the corresponding period of the last fiscal.

Jet Airways reported a net loss of Rs.713.60 crore in the second quarter from a net profit of Rs. 12.40 crore in the same period of the previous fiscal.

Even budget airline SpiceJet lost Rs.240 crore in the quarter under review. It had a net profit of Rs.10 crore last year.

Jet fuel prices constitutes nearly 50 percent of operating cost of domestic carriers. Owing to high fuel cost airlines are expected to lose Rs.3,500 crore in the first six months of this fiscal.

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