In a bid to ease financial burden on airlines, a Group of Ministers (GoM) on Tuesday recommended direct import of jet fuel by carriers to help them save on high taxes. The GoM also gave its nod to cash-strapped Air India to raise Rs 7,400 crore by issuing government-guaranteed bonds or other means.
The GoM’s recommendations, headed by Finance Minister Pranab Mukherjee, would be taken up for approval by the Union Cabinet and the Cabinet Committee on Economic Affairs (CCEA) respectively soon, Civil Aviation Minister Ajit Singh told journalists after the GoM meeting here.
The GoM was also informed of the recent government decision to allow foreign airlines pick up 49 per cent stake in Indian carriers. A note on the issue would be prepared soon for the Union Cabinet to obtain its approval, the minister said.
So far as national flag carrier Air India is concerned, the GoM recommended, among other steps, issuance of bonds with sovereign guarantee worth Rs 7,400 crore, Mr. Singh said.
The bond is likely to carry a coupon rate of 8.5-9 per cent and financial institutions may subscribe to these bonds, official sources said, adding this would be part of Air India’s financial restructuring plan which was also cleared by the GoM.
"The GoM has taken a view on Air India's financial restructuring. Bonds will be issued, but this will have to go to the Cabinet,’’ the minister said.
On ATF imports, Mr. Singh said airline companies would be allowed to import fuel directly for their use. This would also need the Cabinet’s approval, he said.
The decision on jet fuel would help airlines significantly as it accounts for more than 40 per cent of their operating costs. To allow direct import of jet fuel by the airlines, the item has to be removed from the list of those imported through government channels. The move could witness opposition from the State governments who would like to impose "entry tax’’ on directly imported jet fuel, industry sources said.
Incidentally, Kingfisher Airlines had applied to the Director General of Foreign Trade for permission to directly import ATF even before the GoM took up the issue. A number of airlines had complained that ATF costs in India were almost 40-50 per cent higher as compared to Singapore and Dubai, mainly because states levy sales tax which vary from 4 per cent to more than 30 per cent. Fuel is one of the largest cost components of domestic airline and accounts for up to 40 per cent of an airline’s operating costs. Jet and Kingfisher Airlines, among the largest operators, together use up about 80,000 kl of aviation turbine fuel (ATF) a month.
In the last fiscal, Indian oil companies had sold 5.08 million tonnes of jet fuel, an increase of nearly 10 per cent over 2009-10. However, the delivery of ATF right up to the aircraft has to be done through the state-owned refiners which currently have the airport infrastructure required for the purpose.Mr. Singh said that finer details would be worked out in due course.
The GoM meeting was also attended by Home Minister P Chidambaram, Petroleum Minister S Jaipal Reddy, Commerce Minister Anand Sharma and Planning Commission Deputy Chairman Montek Singh Ahluwalia.
