Government rolls out plan to help domestic airlines (Roundup)

February 7th, 2012 - 8:39 pm ICT by IANS  

Pranab Mukherjee New Delhi, Feb 7 (IANS) To help cash-strapped Indian airlines, a group of ministers (GoM) led by Finance Minister Pranab Mukherjee Tuesday rolled out a plan for the carriers to directly import aviation fuel and approved Air India’s debt restructuring, pending a final approval by the cabinet.

The sector, one of the fastest growing in the world, has seen major private airlines bleed as rising prices of aviation turbine fuel (ATF) caused by high sales tax and other levies dented their margins.

“(GoM) has cleared the proposal to allow carriers to import fuel directly. The final clearance will come from the cabinet,” Civil Aviation Minister Ajit Singh told reporters here.

The move will enable airlines to cut operating costs by about 10-15 percent, saving on sales tax, which ranges between four and 35 percent and is levied by state governments, when they directly import jet fuel as an end user.

Jet fuel now comprises about 50 percent of the total operating cost of airlines in India.

“This is the vital step in the process of bringing ATF prices in line with global standards. This will help the entire aviation industry in the long term,” Amber Dubey, director, aviation, at global consultancy firm KPMG, told IANS.

ATF is currently sold at Rs.71,155.22 per kilolitre (kl) in Kolkata, at Rs.67,702.21 per kl in Chennai, at Rs.63,864.31 per kl in Mumbai and Rs.62,907.82 per kl in New Delhi.

The average fuel price in cities like Kuala Lumpur is around Rs.41,000 per kl, followed by Singapore at Rs.42,000 and Dubai at Rs.43,000.

Domestic airlines are estimated to have lost around Rs.3,000 crore in the first six months of this fiscal.

Scrips of three listed domestic carriers — Jet Airways, Kingfisher Airlines and SpiceJet — rallied after the GoM’s decision.

Doubts, however, remain over the implementation of the direct fuel imports by airlines as none has come out with any logistics plan for storing and importing the fuel.

This was one of the arguments by the three oil marketing companies Hindustan Petroleum, Indian Oil and Bharat Petroleum, which were opposing the move.

“We have to see how the airlines will import the fuel, do they have the cash to do so, where will they store the fuel, will they use the oil marketing companies’ infrastructure or not. So, there needs to be clarity on these things first. Besides this, the news is very positive,” Sharan Lillaney, aviation analyst, Angel Broking, told IANS.

The minister also said the GoM had approved the debt restructuring plan of the national carrier Air India and that it will go to the union cabinet for a final nod.

Air India will be allowed to raise Rs.7,400 crore via bonds, backed by a sovereign guarantee, said Ajit Singh.

Currently, the national carrier has a total debt of Rs.43,777 crore, including loans and dues to vendors like oil firms and airport operators.

The plan envisages restructuring of the debt taken by the airline for working capital and aircraft acquisition from a consortium of banks, which include State Bank of India, IDBI and Bank of Baroda.

According to senior officials in the ministry, Air India was allowed to issue bonds after the banks refused to convert the airlines debt into equity.

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