Government approves direct jet fuel import, Air India debt plan

An empowered group of ministers (EGoM) led by Finance Minister Pranab Mukherjee Tuesday allowed domestic airlines to directly import fuel and approved Air India’s debt restructuring plan.

“The EGoM has allowed the airlines to import jet fuel directly,” Civil Aviation Minister Ajit Singh told reporters here.

The Indian aviation sector been reeling under rising aviation turbine fuel (ATF) prices caused by high sales tax and other levies. The move will enable airlines to directly import jet fuel, as an end user, thereby saving sales tax, which ranges between 20-35 percent and is levied by state governments.

As a result there could be significant savings in operating costs. Jet fuel now comprises of about 50 percent of the total operating cost of airlines in India.

ATF is currently sold at Rs.71,155.22 per kilolitre (kl), 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 kilo litre, 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.

Airlines, on the other hand, have not yet 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, who were opposing the move.

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

The national carrier will be allowed to raise Rs.7,400 crore via bonds, backed by a sovereign guarantee, said 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.