 "Is a bailout package in the works for India's ailing airlines?")
New Delhi: Do loss making Indian airlines need a bailout package? Well, some in the Ministry of Civil Aviation think so, specially now that there are fears of at least one ailing airline collapsing unless it is given urgent financial aid. A senior ministry official said today there is some thinking to devise a financial bailout package for airlines, where at least working capital loans are offered at cheaper rates by PSU banks.
He pointed towards a bailout package for the textile sector saying if one can be devised for textile companies, why not another one for airlines? This official also said if Air India, which has been promised Rs 30,000 crore in equity support alone over a decade can be propped up, then private airlines should also be supported in some fashion.
The Civil Aviation Minister, P Ashok Gajapathi Raju, has not yet decided on any such proposal but the mere talk of a bailout is significant since it shows that unlike the previous regime, which allowed Kingfisher Airlines to go down, the present one will try to find ways of preventing any airline from collapsing.
According to the Centre for Asia Pacific Aviation (CAPA), collective airline industry losses of past seven years till March 2014 are $10.6 billion and their combined debt is $15.8 billion. (Only IndiGo and GoAir have turned in the last few years). Indian airlines are expected to collectively lose another $1.8 billion in FY 2013-14 and further $1.4 billion in FY15.
Aviation regulator DGCA is already in the midst of a financial audit of airlines and has asked one airline, SpiceJet, for additional details about its dues to various creditors.
Meanwhile, Raju is already making efforts to bring down operational costs of airlines by pushing state governments to lower taxes on aviation turbine fuel (ATF). A ministry official said Raju has personally requested Chief Ministers of at least 10 states to consider waiving sales tax on jet fuel and everyone has promised to look into the matter. Jet fuel accounts for at least 50% of an airline’s costs and lowering of sales tax will help airlines bring down their costs significantly. Some states have reduced sales tax on ATF significantly in the past but most point out that loss in revenue would not be compensated by increase in flights if the taxation is reduced.
The official quoted earlier said Andhra Pradesh, the minister’s home state, has already taken a decision to abolish sales tax on jet fuel from 24% at present. With Hyderabad out of its fold, AP now needs to boost connectivity and traffic at its four remaining airports of Tirupati, Vishakhapatnam, Rajamundri and Vijaywada. The official said AP has not sought any sops for reducing jet fuel tax and its example will be given to other states. Already, the Civil Aviation Ministers and Secretaries of all states are meeting Raju on August 21 to discuss lowering of taxes on jet fuel.
Yet another way of helping airlines out of their current financial mess is by raising the FDI cap beyond 49% for foreign airlines to come and invest in Indian ones. Two new airlines have come up after the earlier ban was lifted and in Jet Airways, Etihad has picked up 24% and provided it a lifeline in the process. If the FDI cap were to raised beyond 49%, it could offer control to a foreign carrier - but this is precisely why the Indian Government is not keen on any such proposal.
If state Governments remain skeptical about lowering sales tax on jet fuel due to revenue loss and the Government remains convinced about no further liberalisation in FDI caps, perhaps the only solution is a well-thought out financial bailout package for airlines.