In what can be perceived as a sign of desperation on the part of the Indian domestic airlines, the Federation of Indian Airlines has submitted an application to the Directorate General of Foreign Trade (DGFT) to allow the airlines to import Aviation Turbine Fuel (ATF) directly. This, despite the fact, that India is a net exporter of ATF.
At present, India produces 7.8 million tonne of ATF making the country self sufficient in production with the ability to export around 3.6 million tonne. The move, according to officials in the ministry of civil aviation, will bring down the domestic air carrier?s fuel bill by around 25 to 30% and thereby bring down their operating cost by more than 10%.
?The FIA has submitted the application on the behalf of some of the major airlines,? the official said.
The law of the land at present does allow such an arrangement but the oil companies and the state governments whose revenues would beaffected by the arrangement would obviously not allow it to happen, the official added.
One analyst said that the probability of allowing airlines to import their own ATF from countries where it is a much cheaper commodity is very low as the oil companies have very strong lobbying muscle within the bureaucracy. At present, the price of ATF for Indian carriers is around 60% higher than most other countries. For Indian carriers, the fuel bill constitutes about 45-50% of the operating expenses. A 10% reduction in the operating cost would easily bring their balance sheets more similar to the international carriers whose fuel bill is around 35% of the total operating costs.
It is estimated that Indian carriers lost $500 million last year due to irrational ATF pricing and as per industry estimates, the projected losses for 2008-09 would be in the range of $2 billion causing many carriers to cut operations or face shutdown.
When asked whether the airlines would reduce fares soon, the official said that they would have to first get ?their noses above water? but eventually they would have to as load factors are suffering. ?A seat is a perishable commodity to an airline and therefore prices have to come down,? he said. On the possibility of a package to bail out airlines, the official said that it was not possible at this time as the government would have to take from somewhere else to give the airlines, which is not possible in the present economic scenario. Air India, in the meanwhile has applied to the ministry for Rs 1,350 equity infusion, so as to bring its equity base up from Rs 145 crore to Rs 1,500 crore, and another Rs 1,000 crore in soft loans.
?Most probably these will be granted by the government but with riders, either from the cabinet secretary or the finance ministry or some other government body, based on the operational efficiency of the carrier,? he said. The application has to do the rounds of the various ministries and departments before it can be passed by the Cabinet.