In good news for India’s debt-laden aviation sector, the government has permitted external commercial borrowing (ECB) of up to $1 billion to help the country’s bleeding airlines that are likely to post a combined loss of $2.5 billion (Rs 12,575 crore) this fiscal year, raise cash.
The budget brought good news for state-owned carrier Air India (AI) as well, with finance minister Pranab Mukherjee announcing an equity infusion of Rs. 4,000 crore for the cash-strapped carrier in fiscal year 2012-13. The government has so far infused Rs. 3,200 crore into Air India.
The airline industry, Mukherjee said, was facing a financial crisis. The high operating cost of the sector, he said, is largely attributable to the cost of aviation turbine fuel (ATF) or jet fuel. “To reduce the cost of ATF, the government has permitted direct import of ATF by Indian carriers, as actual users.”
“To address the immediate financing concerns of the civil aviation sector, I propose to permit ECB for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of $1 billion,” said Mukherjee.
“A proposal to allow foreign airlines to participate up to 49% in the equity of an air transport undertaking engaged in operation of scheduled and non-scheduled air transport services is under active consideration of the government,” he added.
The finance minister said that India had the potential for establishing itself as a hub for third-party maintenance, repair and overhaul of civilian aircraft. “To actualise this potential, I propose to fully exempt from basic customs duty parts of aircraft and testing equipment imported for this purpose. It is also proposed to fully exempt both new and retreaded aircraft tyres from basic customs duty and excise duty."