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Cash-strapped pvt carriers can import jet fuel directly
Group of Ministers also okays Air India debt plan
Vibha Sharma/TNS

Too costly to fly

  • Aviation turbine fuel accounts for 40% of the operating cost of Indian carriers as against only 20 for international carriers
  • In India, it is priced 60 per cent higher than anywhere in the world
  • This huge negative impact was eroding the airlines’ competitiveness

New Delhi, February 7
An empowered Group of Ministers (GoM) today fulfilled a long-pending demand of private airlines by giving the go-ahead for the direct import of jet fuel - a move that will now help cash-strapped carriers save on high sales tax charged by some states and significantly lower staggering financial losses.

The panel headed by Finance Minister Pranab Mukherjee also cleared beleaguered national carrier Air India’s debt restructuring package. Aviation Minister Ajit Singh said the national carrier would be able to raise funds by floating bonds worth Rs 7,500 crore.

The two issues will now be sent to the Cabinet for final approval. While the Cabinet approval may take some time, the indication that the government was open to letting carriers import aviation turbine fuel (ATF) saw their stocks move north. ATF constitutes more than 40 per cent of the overall operating cost of an airline and operators said the decision would have a positive impact on the sinking fortunes of aviation companies.

According to Kapil Kaul, CAPA CEO, South Asia, airlines - private and state-run Air India - are projected to suffer a whopping Rs 10,000-12,000 crore loss during the 2011-12 fiscal. Varying from state to state, airlines currently shell out sales tax that may be as high as 30 per cent.

Fuel is taxed between four and 30 per cent depending on the state in question and in the last fiscal, oil companies sold 5.08 million tonnes of jet fuel, an increase of 9.7 per cent over 2009-10.

Whenever direct imports are allowed, carriers will no longer have to pay sales tax and this, as per aviation experts, will translate into significant savings.

According to the Federation of Indian Airlines, direct import would help save a carrier more than 10 per cent of its operating cost.

But, it is yet to be seen how the states react to the losses that they will incur due to this move. While rationalisation of the ATF prices has been a long-pending demand of the sector, the Centre - despite its best efforts - has not been able to convince the states to lower the taxes on jet fuel. The states’ reluctance had been primarily generated from revenue loss in the absence of any immediate offsetting benefit.

The Economic Survey 2010-11 had also warned that high jet fuel prices had the capacity to clip the wings of India’s aviation sector.

Last year’s pre-Budget document cautioned that higher crude prices would prove to be a dampener for the industry because if air travel becomes costlier, it would go out of reach for a significant portion of the market that is fuelling the growth of the industry.

“The single largest element contributing to airline cost is aviation turbine fuel (ATF) which accounts for 40 per cent of the operating cost of Indian carriers as against a figure of only 20 for international carriers,” the Economic Survey had said.

ATF in India is priced 60 per cent higher than anywhere in the world, it said, adding that the widening differential in ATF prices and its huge negative impact on airline balance sheet were eroding their competitiveness.





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