The direct import of aviation turbine fuel (ATF) will help passenger carriers cut down operational cost, but is unlikely to lower air fares, thanks to heavy losses. However, the lower operational cost will slash losses and attract foreign investment.

?Direct import of the ATF could help reduce airline operating costs by anywhere between 5% and 8%,? said Amber Dubey, director-aviation, with audit and consultancy firm KPMG. ?This is on account of reduced sales tax but factoring in higher important duties, infrastructure and transportation charges to oil companies and the entry taxes that state governments may impose.?

Others expect cost savings to be slightly higher. ?There will be huge cost savings in the region of 10-15%,? said Dhiraj Mathur, executive director with PricewaterhouseCoopers, an audit and consulting firm. ?But, the airlines will still have to pay the oil companies.?

?The cost savings will benefit bottom line of airline companies, however, it may not bring them back to profits immediately as interest cost pinches them,? he added.

But, this cost saving won?t reflect in lower fares. ?We expect the cost saving to be utilised in paring the huge debt burden on the airlines,? Dubey added. ?In the short term, we may not see the trickledown effect of reduced fares.? He also said that yields for airlines are low because of the fare war.

Former airline executives agree that direct import of ATF will result in lower costs for airlines but, there?s little in it for passengers to be happy about, Kishore Jaleel, a former international affairs analyst with Emirates.

?The benefits are substantial because they can source the ATF from low cost areas like Singapore. I?m not sure whether the airlines will pass on the benefits immediately to passengers considering the mounting losses they face,? he added.

Consultants don?t expect domestic ATF sales to stop completely. ?Unless an alternative infrastructure is in place, it won?t be feasible for the airlines to completely stop buying from the oil companies,? said Dubey. ?Airlines will need to use oil companies storage terminals, pipelines and logistics to import jet fuel. he added.

According to him, setting up the required infrastructure at ports and other logistics, necessitate investments from the airlines, which is a extremely difficult at this juncture, considering their already stretched balance sheets.

?Domestic sales won?t completely stop,? said Mathur of PwC. ?In states where the taxation is low, like Andhra Pradesh and Gujarat, the benefit of importing ATF won?t be too high. So airlines will continue to source ATF locally in those states.? According to him, the move could also force states to bring down taxes on ATF as they would run the risk of completely losing out on revenue.

?We might become the only country to export a commodity to country A and then import the same commodity from another country B,? said Dubey. ?If the states had rationalized the huge ATF taxes, this import may not be required in the first place.? Indian oil companies exports 43% of jet fuel they produce.

If costs come down on the fuel front, Indian carriers could become attractive for foreign airlines. The Group of Ministers have also agreed to allow foreign carriers to pick up 49% stake in Indian carriers. The final decision will be taken by the Union Cabinet.

?ATF costs were a very big issue and it was a big deterrent for investors,? said Mathur. ?If this blockage gets resolved, then definitely Indian carriers will be more attractive.?

Dubey said that it is a good initiative for the loss making sector. ?It shows that the government is conscious of the travails of this critical transportation sector and is ready to take bold measures if other simpler options don?t work,? he said.

?We feel that the Indian market is attractive enough for foreign airlines to come in ? either through acquisition or an alliance or a new JV company route,? he added. ?The above initiatives if undertaken will enhance the attractiveness of the domestic carriers further.?

?Of course, if our carriers can bring down costs and thereby increase profitability, it would help,? said Jaleel. ?Foreign investment is more complicated than meets

the eye. Many imponderables are involved.?