Aviation industry upset over jet fuel prices, seeks tax sops

ATF prices remain at elevated levels as compared to pre-pandemic levels at  ₹1.01 lakh per kilolitre as of January as compared to over  ₹64,000 in 2019-20.
ATF prices remain at elevated levels as compared to pre-pandemic levels at 1.01 lakh per kilolitre as of January as compared to over 64,000 in 2019-20.

Summary

  • For Indian airlines, expenditure on jet fuel amounts to nearly 40% of their total expenses as compared to a global average of 20-25%.

NEW DELHI : With the Union Budget 2024-25 on the anvil, the Indian aviation industry hopes for a range of measures to reduce cost burden with respect to aviation turbine fuel (ATF), lower duty structure on import of private aircraft, categorization of airports under priority sector lending and more initiatives to improve regional connectivity in India.

“The import duty has to be done away with. It comes to 3% when you import either by purchasing of aircraft or induct it on lease. That is one biggest hurdle. Rest are all policy matters which can be dealt with. This makes import very expensive. It has outlived its validity. It was imposed 15 years ago and has outlived its utility. The government must remove it," Harsh Vardhan Sharma, president, Business Aircraft Operators Association, said.

For Indian airlines, expenditure on jet fuel amounts to nearly 40% of their total expenses as compared to a global average of 20-25%. The ATF prices declined sequentially till June 2023 in the current financial year. After which, it increased sequentially till October but decreased sequentially again by 6% in November, 5% in December and 4% in January 2024.

However, they still remain at elevated levels as compared to pre-pandemic levels at 1.01 lakh per kilolitre as of January as compared to over 64,000 in 2019-20.

“The Indian aviation industry expects rationalization in the duty structure of aviation turbine fuel as well as inclusion of the same under goods and services tax," Suprio Banerjee, vice president & sector head - Corporate Ratings, ICRA, said.

Travel platform MakeMyTrip also reiterated that while the Union government has encouraged state governments to reduce value added tax on the jet fuel, a broader policy framework can be considered.

“The honourable finance minister can consider a broader policy framework that indirectly affects the cost of ATF, like central excise duties and customs duties. The reduction in ATF could catalyze a domino effect, increasing air travel frequency, bolstering airport revenues, and enhancing connectivity to various tourist destinations. Improved accessibility can significantly boost tourism, benefiting local economies and contributing to national economic growth," Rajesh Magow, co-founder and group chief executive officer, MakeMyTrip, said.

The airport sector hopes for categorisation of airports under priority sector lending in order to reduce the cost burden for creation of new infrastructure to support Indian air travel growth.

“Airport construction requires huge investment and long gestation period. A short period of loan availability, coupled with a high interest rate results in a huge financial cost and cash flow mismatch for airport operations," the Association of Private Airport Operators has stated in its Budget request.

Companies involved in aircraft and engine component manufacturing are optimistic about incentives to boost the supply chain in the aviation ecosystem in India as Indian airlines now have more than 1,600 aircraft on order.

“Interim Budget 2024 presents an opportunity for the government to extend the production-linked incentive scheme to additional industries, especially labour-intensive manufacturing sectors, which would have a significantly larger multiplier effect on the Indian economy. Additionally, I would welcome a holistic approach to build a resilient domestic supply chain ecosystem to further solidify India’s manufacturing prowess," Aravind Melligeri, chairman and chief executive officer Aequs, said.

ICRA also expects a boost to the Indian maintenance, repair and overhaul sector and focus on expansion of regional connectivity, aircraft leasing ecosystem and tourism in the Union Budget.The emerging drone industry is also seeking more policy and fiscal measures to establish India as a drone hub by 2030.

“Our expectations for the upcoming Budget 2024-25 is centered around policy measures and fiscal incentives to establish India as a global drone hub by 2030. The foundation laid by the existing Drone Rules and Production-Linked Incentive Scheme is promising, and we look forward to further enhancements in regulatory frameworks and their execution to fuel innovation and industry growth.

Continued support for research and development, along with incentives for technological collaborations, will be instrumental in propelling India’s drone manufacturing capabilities to new heights," Ankit Mehta, chief executive officer, ideaForge said.

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