Airlines owe oil companies Rs1,800 crore3 min read . Updated: 17 Oct 2008, 10:31 AM IST
Airlines owe oil companies Rs1,800 crore
Airlines owe oil companies Rs1,800 crore
New Delhi / Hyderabad: The country’s bleeding airline firms such as Jet Airways (India) Ltd, Kingfisher Airlines Ltd and National Aviation Co. of India Ltd (Nacil) owe the country’s oil firms, themselves suffering losses on account of retailing fuel at government mandated rates, at least Rs1,800 crore.
This number is the amount owed by the airlines in excess of their credit limits with the oil companies. “The airlines should have honoured the credit limit, but some airlines are not honouring it," Murli Deora, Union minister for petroleum and natural gas, said.
Union oil secretary R.S. Pandey named the three airlines as defaulters on Thursday. The country’s airlines are suffering significant losses on account of higher fuel prices and lower passenger traffic. Aggregate losses are expected to touch $2 billion (Rs9,780 crore) this year.
Two of the airlines, Jet and Kingfisher announced an alliance on Tuesday that would rationalize routes, workforce and costs for both.
Of the total amount owed by the airlines, 60% has to be paid to Indian Oil Corp. Ltd (IOC) and the balance to Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd.
A Jet executive, who did not want to be named, admitted that the airline owed Rs850 crore for fuel purchases.
A spokesperson for Kingfisher Airlines said the airline did not want to disclose the amount it owed towards fuel purchases and said the airline was “in compliance with the settlement terms made between oil marketing companies as agreed (to) time to time".
Jitendra Bhargava, Nacil’s executive director for corporate communications, declined comment on the subject.
Jet fuel, or aviation turbine fuel, accounts for 45% of the operational costs of Indian carriers and is 70% more expensive than in foreign markets because of multiple taxes, including one levied by the states.
“Jet has overshot the credit cycle by 30 days. They have to pay us the interest on delayed payment, arrange for secured credit and take other measures like any other business. They have to repay," said Sarthak Behuria, chairman and managing director, IOC.
Around 4.7 million tonnes of jet fuel is sold every year and domestic airlines buy half of this.
An IOC executive, who did not want to be named, said the company had “no issues with international airlines".
He added that while the local airlines had been the oil company’s customers for some time, “beyond a time frame and amount, we cannot stretch our credit terms".
According to IOC, Jet Airways has exceeded its credit limit of Rs600 crore by Rs330 crore, Nacil has no credit limit in place with the company and owes it Rs606 crore, and Kingfisher, which has a credit limit of around Rs60 crore, has breached the limit by around Rs40 crore.
Despite falling crude prices, oil firms are expected to register significant losses because they continue to sell below cost at government mandated rates, and because the weakening rupee increases their cost of servicing dollar debts.
IOC alone expects to end 2008-09 with Rs70,000 crore in losses.
“These are difficult times for them (airlines) and oil companies. Indian Oil, Bharat Petroleum and Hindustan Petroleum practically live on borrowings and so the airlines have to clear their outstanding (at the earliest)... If there are demands for reduction in taxes (on jet fuel), the issue is to be addressed by the finance ministry and the respective state governments," said Pandey.
“Notwithstanding the current situation, airlines would want to settle the dues with oil marketing companies since that is their commitment. However, with the ongoing financial turmoil, some inter-ministerial interventions from the ministry of civil aviation and ministry of petroleum is possible," said Kapil Arora, an aviation analyst with audit and consulting firm Ernst and Young.
Arora expects the issue to be settled “amicably".
India’s airlines have been lobbying for a bailout package from the government.
PTI contributed to this story.