The Directorate General of Foreign Trade (DGFT) has agreed to allow domestic airlines to directly import jet fuel, a move set to help the loss-making carriers like Kingfisher Airlines and Air India save on fuel cost, which accounts for nearly 40% of their total operating cost.
Faced with mounting losses on the back of rising fuel price, a weakening rupee against the dollar and cut-throat competition in the market, Kingfisher Airlines had last month sought the government’s permission to import aviation turbine fuel (ATF) to avoid paying sales tax ranging from 4-36% on it.
?At a meeting last week of committee of secretaries (CoS), it was decided that airlines be allowed to directly import ATF for their own use,” official sources told FE. The sources added that DGFT was initially agreeable to allow airlines to import fuel only for a limited time period, depending upon their requirements, but acceded to aviation ministry ministry’s request for not limiting the time period. However, a formal notification on the same will soon be issued by the DGFT.
Ernst & Young partner Paresh Parekh, however, expressed concern over storage of imported ATF as airlines don’t have fueling infrastructure. Almost all domestic airlines are bleeding due to the high fuel price in the country, which is nearly 50-60% more compared to countries like Malaysia, Thailand and UAE. For instance, a kilolitre of jetfuel on November 1 cost R41,009 in Kuala Lumpur compared to R68,769 in Kolkata.
At present, public sector oil marketing companies (OMCs) have monopoly over distribution and sale of ATF and airlines alleged they are not maintaining transparency in pricing.
The domestic airlines have been demanding rationalisation of taxes on ATF to save on operating cost. While taxes on jet fuel is high in the country, the global crude price has increased 30% this fiscal, adding to the airline’s cost of operations.
?A 10% increase in fuel price impacts the operating cost of an airline to the extent of 300-350 basis points,” Rashesh Shah, equity research analyst at ICICI Securities said.
The woes of airlines have not ended there, with the rupee depreciating by nearly 18%, increasing the cash outgo of carriers as major payments like maintenance and lease rentals are in foreign currency.
