Oct 10, 2008

Business - India;Private carriers ask for Rs 4,700 crore bailout

Manisha Singhal / Mumbai October 10, 2008, 0:22 IST

The country’s leading private airlines have sought a Rs 4,700-crore bailout package from the government to counter slowing passenger traffic, rising costs and an industry-wide liquidity crunch. Airline chiefs recently made a presentation to the Prime Minister’s Office to this effect and government sources said some of their demands may be accepted.

The concessions requested include an interest-free loan with a “bullet” (one-time) repayment after three years, putting aviation turbine fuel (ATF) in the “declared goods” category for sales tax relief and scrapping customs (5.15 per cent) and central excise (8.54 per cent) on the fuel.


Interest-free loan with a “bullet” (one-time) repayment after three years
ATF be put under ‘declared goods’ for uniform sales tax
Reduction or withdrawal of duty on spare parts for aircraft maintenance
Scrapping customs and central excise on ATF
50% reduction in airport landing, route and terminal navigation charges for 24 months
Freeze on further increases in airport service charges

The industry has also asked for a reduction or withdrawal of duty on spare parts for aircraft maintenance. Airlines have also asked for a 50 per cent reduction in airport landing, route and terminal navigation charges for 24 months for domestic operations and a freeze on increase in airport service charges, sources close to the development said.

Government sources told Business Standard that the civil aviation ministry hopes that its finance counterpart will soon accept the demand to bracket ATF in the declared goods category. This would mean that the differential sales tax that states charge (between 8 and 34 per cent) would be made uniform. This could help the airlines save some cost, since most states charge sales tax on ATF on the higher side.

“In terms of impacting the traveller, it probably would mean a reduction of a few percentage points in the fuel surcharge levied per ticket,” said Mark Martin, senior advisor, aviation, KPMG. The average fuel surcharge is around Rs 4,000 per ticket.

Aviation ministry sources said the demand to halve airport charges is unlikely to be considered. Also, given that oil prices have dropped below $90 a barrel and are expected to fall further, the grounds for a bailout may not exist in a few months.

Airline companies are expected to log losses of Rs 9,400 crore this financial year on revenues of Rs 28,200 crore. The private carriers, some of which expanded their fleets and launched international routes this year, have failed to garner investor interest (barring low-cost carrier SpiceJet) or raise money from institutions to fund their losses and expansion plans.

Private carriers like Naresh Goyal-promoted Jet Airways have been forced to postpone plans to raise money from the markets. Similarly, Kingfisher has reiterated that it wants to raise between Rs 1,175 crore and Rs 2,115 crore for capex and other expenses, but has not announced any fund-raising offers yet. Wadia Group-promoted GoAir has also been looking for private equity investors but there have been no developments so far.

Private carriers are hoping for some response from the government soon.

“The government has not moved at all. It seems it wants everybody in this country to travel by train because the airlines are bleeding heavily,” said Kingfisher Airlines promoter Vijay Mallya.

In the past, the government has considered, with riders, a bailout package of over Rs 2,000 crore for National Aviation Company Ltd, which has declared losses of more than Rs 2,500 crore.

Aviation experts say airlines are to be blamed for the financial crisis. “Could they not see the writing on the wall that crude, as a commodity, will go up? They made their biggest mistake when they started competing with the Indian Railways,” said an aviation analyst who did not wish to be identified.

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