New Delhi: The Centre has eased the immediate financial concerns at loss-making domestic airlines by allowing them to square up in six equal instalments dues of Rs2,962 crore owed to state-run oil firms with no interest levied, securing, in turn, assurances that they will not retrench staff as a measure to cut costs.
The arrangement, decided at a Wednesday meeting of oil minister Murli Deora, aviation minister Praful Patel, senior officials of both ministries and airline executives, comes at a time when India’s three top airlines—Jet Airways India Ltd, Kingfisher Airlines Ltd and government-owned National Aviation Co. of India Ltd, or Nacil—that control some 70% share of the air passenger market plan to cut back on flights.
Jet fuel, also called aviation turbine fuel, or ATF, in India accounts for 40-55% of an airline’s total costs and airlines enjoy credit periods up to 60 days to pay for the fuel they purchase. ATF is sold at prices that are 70% more than in foreign markets, in part due to multiple taxes.
Quid pro quo: Praful Patel (right) and Murli Deora at the meeting in New Delhi. Gurinder Osan / AP
While the airlines wanted the time to pay for their fuel purchases to be extended to six-nine months, oil marketing companies agreed to extend the credit limit for all airlines to 90 days and revise ATF prices every 15 days from the earlier once a month.
“Aviation industry which was growing at 25-30% last year has seen a negative growth this year. This has affected their ability to repay dues. I have cautioned all the airlines against layoffs. On one hand we have done this, we all need responsible action on their part,” Patel told reporters after the meeting.
Nacil, Jet and Kingfisher owe Rs886 crore, Rs1,057 crore and Rs983 crore, respectively, to oil firms such as Indian Oil Corp. Ltd, Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd. Of this, payment of Rs2,131 crore is overdue beyond the credit period airlines have with the firms, which together expect losses of Rs1.4 trillion this fiscal.
At Wednesday’s meeting— attended by Kingfisher chairman Vijay Mallya, Jet executive director Saroj Datta and Nacil chairman and managing director Raghu Menon—aviation and petroleum ministries also decided to ask the finance ministry to treat ATF as a so-called declared good, thus levying on it a uniform 4% sales tax. States levy sales tax of up to 30% on fuel sales at airports in their jurisdiction.
A finance ministry reaction was not immediately available on this recommendation.
Separately, Jet plans to cut 26% of its overseas flights and reduce it further once the peak winter season ends, a senior government official present at the meeting said, citing an airline executive. Jet, which also plans to reduce 15% of its domestic capacity, wants to lease out five-six of its wide-body planes or ground them and is exploring similar options for eight of its Boeing 737 planes.
Nacil has already withdrawn 20% capacity on international routes, said the same government official, who asked not to be named.
P.R. Sanjai in Mumbai contributed to this story.