Air India has a 90 day credit period, which means the aviation turbine fuel (ATF) it buys on a given day has to be paid for in three months.
Air India owes three state-owned oil firms Rs 5,000 crore in unpaid fuel bills with payments being delayed by almost eight months, forcing retailers to snap supplies, Indian Oil Corp (IOC) said on Friday.
IOC, Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) on Thursday afternoon stopped jet fuel or ATF supplies to Air India at six airports – Kochi, Pune, Patna, Ranchi, Vizag and Mohali – over payment defaults.
“The joint decision to stop fuel supply to Air India from six airports, i.e., Kochi, Mohali, Pune, Ranchi, Patna and Visakhapatnam, was taken by the oil marketing companies in the wake of long overdue payments to the tune of Rs 5,000 crore,” IOC said in a statement issued on behalf of the three firms explaining the constraints that led to take the harsh decision.
The overdue amount includes the interest accrued on the outstanding dues.
Air India has a 90 day credit period, which means the aviation turbine fuel (ATF) it buys on a given day has to be paid for in three months. But Air India had not been making payments and the credit period was now 230 days, IOC said.
“PSU oil marketing companies have been constrained to suspend supply of jet fuel to Air India and Alliance Air flights at six airports from the evening of August 22, 2019 due to mounting outstanding dues from the airline and their ramifications for their working capital requirements,” the statement said.
The three firms through a letter dated August 14 intimated the Air India management of their decision to stop fuel supplies at the six airports with effect from August 22 if dues were not cleared.
Air India uplifts about 250 kilolitres (kl) of ATF at the six airports on a daily basis.
“The three PSUs had served similar notices on Air India earlier but withdrew them subsequently and continued with ATF supplies on the assurance of Air India management that the outstanding dues will be cleared at the earliest. However, despite repeated follow-up and reminders for payment by the OMCs, no major reduction in the outstandings materialised from the airline till date,” the statement said.
The ATF prices have dropped from a high of Rs 76,378 per kl in November 2018 to Rs 63,295 per kl currently.
“As per the commercial terms agreed upon, Air India enjoys a credit period of 90 days. However, the credit period has since crossed the limit and has been at about 230 days for the past nearly two years. Despite this, the OMCs have been supportive of Air India throughout this period.
“Considering the huge outstandings from Air India and their ramifications for their working capital requirements, the three OMCs have been constrained to take the decision of stoppage of fuel supply at six airports,” the statement added.
However, Air India flights operating from the six airports, where ATF supplies have been suspended, were tanking up from other airports.
Earlier in the day, senior oil company officials said Air India had offered to pay Rs 60 crore which was “a drop in the ocean” as compared to what the airline owed to the three firms.
Another official said Air India gets financial support from the government while for oil firms there is no such help.
“Aviation Turbine Fuel (ATF) pricing was deregulated in April 2002. And since then we have to run this business without any subsidy support from the government,” he said.
At present, the government only provides some subsidy on LPG to help roll out its ambitious Ujjwala scheme of providing free cooking gas connections to poor. There is also a subsidy on kerosene supplied through the public distribution system (PDS).
A senior Air India official had on Thursday said that oil firms stopped fuel supplies to the airline at Cochin, Visakhapatnam, Mohali, Ranchi, Pune and Patna around 4 pm.
Air India spokesperson had on Thursday stated that “in the absence of equity support, Air India cannot handle the huge debt service liabilities”.
“Our financial performance, however, this fiscal is very good and we are moving towards a healthy operating profit. The airline despite its legacy issues is performing very well,” he had added.
Air India has debt of over Rs 58,000 crore.