Mumbai/New Delhi: Even as the government is considering a rationalization of jet fuel prices, oil marketing companies have given India’s loss-making airline industry a new deadline to clear their fuel dues within 15 days.
While the airlines received the notice last week, their bosses continue to lobby state-run oil companies and ministries to extend the deadline to settle the dues. As reported by Mint on 17 October, India’s airlines including Jet Airways (India) Ltd, Kingfisher Airlines Ltd and National Aviation Co. of India Ltd (Nacil), owe oil companies around Rs1,800 crore beyond their fully tapped, existing credit limits with the fuel suppliers.
“We have asked for overdues to be cleared, which are beyond the agreed terms. It is not that we are threatening someone. This is being done in the normal course of business,” said Sarthak Behuria, chairman and managing director, Indian Oil Corp. Ltd, or IOC.
Some 60% of the dues has to be paid to IOC and the rest to Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd. “Letters have gone to them (airlines) and they have started responding favourably. The airlines are talking to us. We ourselves are having a liquidity crunch,” says a senior IOC executive who didn’t want to be identified. IOC expects to end fiscal 2009 with Rs70,000 crore in losses.
According to IOC, Jet Airways has exceeded its credit limit of Rs600 crore by Rs330 crore; Nacil, which has no credit limit in place, owes Rs606 crore; and Kingfisher, which has a credit limit of around Rs60 crore, has exceeded the limit by around Rs40 crore.
Jet fuel accounts for 45-55% of the operating expenses of airlines and costs 70% higher in India than in other markets because of multiple taxes, including one levied by states.
A Jet Airways executive confirmed the development. A Kingfisher executive, who did not want to be named, said the carrier, which had received a letter from the oil firms to settle dues, was in the process of complying with that. A SpiceJet executive, who also didn’t want to be identified, said it had cleared its dues.
India’s airlines are expected to end this year with aggregate losses of about $2 billion (Rs9,740 crore), up from around $1 billion last year.
“Airlines are bleeding and it will be tough to pay outstanding dues to oil marketing companies. But one should not forget that airlines were imposing nearly Rs3,000 per ticket as fuel surcharge. Airlines should be able to settle the dues within the stipulated period,” said an aviation analyst with an international consulting firm, who didn’t want to be named.
Mint reported on 18 October about the ATF rationalization move by the government, tied to airlines not laying off employees. “Airlines cannot always blame high ATF prices. In fact, airlines should be practising upfront payment to hedge the fluctuations in the oil prices,” the analyst added.