Mumbai: State-owned Air India will seek discounts from three state-owned oil marketing companies on jet fuel sales at par with private airlines and ask for a few more days to settle dues.
The companies had threatened to halt aviation turbine fuel (ATF, commonly known as jet fuel) sale on credit beginning 23 February if the airline failed to clear dues of almost Rs2,000 crore before Monday evening.
“Private carriers such as Jet Airways (India) Ltd and Kingfisher Airlines Ltd are getting an average discount of between Rs3,000 and Rs4,000 per kilolitre of aviation turbine fuel since they have lower credit period and bank guarantees to support the purchase,” said a senior Air India executive, who did not want to be identified. “We had already asked for extended credit period from three months to six months, which they (oil marketeers) turned down. But we are eligible for discounts at par with private airlines. The market is extremely competitive now with private companies selling jet fuel.”
Air India’s annual fuel bill ranges between Rs3,500 crore and Rs4,000 crore.
Faced with threats from oil marketing firms that they would stop supplies to the carrier, the Union government on Saturday threw a Rs1,000 crore lifeline to the airline run by National Aviation Co. of India Ltd to settle fuel bills.
The ministry of civil aviation agreed to extend Air India’s working capital limit by Rs1,000 crore at a Saturday board meeting to tide over the immediate crisis, a ministry official told Mint.
A second ministry official said three state-owned oil marketing firms had written to Air India that they would move the carrier to a cash-and-carry model—in which it would have to pay before planes took on fuel—if it did not clear dues by Monday evening.
Both ministry officials declined to be identified because of the sensitive nature of the matter.
“Air India has already exhausted its (Rs17,000 crore) loan limit for raising working capital loans,” said one of the two officials.
On Thursday, the cabinet committee on economic affairs had approved the release of Rs800 crore as the first tranche of equity injection into Air India to help the carrier ease its cash flow situation and secure funds at a lower cost.
“We will start talking to nationalized banks starting from Monday to clear jet fuel dues. We will ask (the oil companies) for a few more days to clear the dues,” said the Air India executive.
The airline, which posted a loss of Rs5,548 crore in 2008-09 and runs a monthly cash deficit of Rs400 crore, is seeking a total of Rs5,000 crore from the government to increase its debt-raising capacity. Its current equity base is Rs145 crore.
A senior executive with a state-run oil marketing company confirmed that three state-owned oil companies— Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd.—had written to Air India to settle dues.
The three oil marketing firms enjoy a virtual monopoly in jet fuel sales and also fix prices based on an agreed-to formula.
A spokesperson for IOC, the leading jet fuel seller, declined to comment, saying the firm does not discuss customer issues in the media.
“Extending working capital limits or infusing part equity are temporary solutions to permanent problems afflicting Air India,” said M.S. Balakrishnan, former director of finance at the erstwhile Indian Airlines, the former national domestic carrier, since merged with Air India. “One will have to find other ways and means to increase revenues and lower cash deficit.”
The latest reprieve for Air India comes at a time when it has shown improvement in its operational and financial parameters during the first half of the fiscal. The carrier’s operating loss of Rs2,029 crore for the first six months of the current fiscal has been around 23% lower than the year-ago Rs2,638 crore loss.
In November, the group of ministers headed by finance minister Pranab Mukherjee, decided to infuse capital into the airline in tranches of Rs400 crore, based on monthly reviews of cost-cutting by the airline.
While this would have meant an infusion of Rs2,000 crore by March-end, the panel capped the amount for the remainder of fiscal 2010 at Rs800 crore.