In good news for the cash-strapped Indian aviation sector, a Group of Ministers (GoM) on Tuesday approved a proposal allowing airlines to directly import jet fuel. The GoM also cleared Air India's (AI) financial restructuring plan (FRP).
Indian carriers pay an estimated R2,500 crore annually as sales tax to state governments for Aviation Turbine Fuel (ATF) with Air India (AI) alone paying around R700 crore. Airlines will now end up saving this amount if all carriers decide to import fuel directly.
ATF in India is priced almost 60% higher than internationally and accounts for 40% of the operating cost of Indian carriers.
After the news came out on Tuesday, shares of airlines -- listed carriers include Jet Airways, Kingfisher Airlines and Spicejet-- witnessed an upswing. At present, airlines buy fuel from oil marketing companies.
"Companies will be allowed to import fuel directly for their use. We will try to see whether some kind of credit arrangement can be made," said aviation minister Ajit Singh. Airlines will pay a particular fees to state-owned refiners to transport the fuel to airports.
The recommendation will be sent to the cabinet for approval.
In another major decision, finance minister Pranab Mukherjee-headed GoM cleared AI's FRP and in all likelihood AI will issue government-guaranteed bonds worth R7,400 crore and the money raised will then be used to pay back the 21 lending banks. The cabinet committee on economic affairs needs to clear the proposal now.
The bonds, which will have a 15 to 20 year maturity period, will be open to subscription by financial institutions and banks and will carry a government security rate plus premium.
The FRP will be re-worked, as AI board had earlier approved allotment of preference shares to lenders to which banks did not agree. Another proposal was to issue SLR bonds but RBI did not approved this. A third option was that the government pay off the loan.
As first reported by HT on September 22, AI will reduce its annual interest burden by as much as R1000 crore by restructuring its working capital loans.