GoM allows airlines to directly import jet fuel

In major initiatives to strengthen the cash-strapped aviation sector, a Group of Ministers on Tuesday decided to allow airlines to directly import jet fuel to enable them save on high incidence of tax and permit Air India to raise Rs 7,400 crore by issuing bonds or other means.

The GoM, headed by Finance Minister Pranab Mukherjee, was also apprised of the decision to allow foreign airlines pick up 49 per cent stake in Indian carriers.

While the decisions on direct import of aviation turbine fuel (ATF) and allowing foreign airlines to invest would go to the Union Cabinet for a final nod, the Cabinet Committee on Economic Affairs would take up Air India's financial restructuring plan for approval soon, Civil Aviation Minister Ajit Singh told reporters after the 90-minute meeting in New Delhi.

"First thing is that on Air India's financial restructuring, the GoM has taken a view. Bonds will be issued, but this will have to go to the Cabinet. Bonds, and there are other ways, GoM has more or less taken a view on this," he said, adding that about Rs 7,400 crore would be raised through these means.

On ATF imports, Singh said airline "companies will be allowed to import fuel directly for their use. This also has to go to the Cabinet. GoM has approved this. We will try to see whether some kind of credit arrangement can be made."

The meeting was also attended by Home Minister P Chidambaram, Petroleum Minister S Jaipal Reddy, Commerce Minister Anand Sharma and Planning Commission Deputy Chairman Montek Singh Ahluwalia, apart from top officials.

To questions on allowing foreign airlines to buy equity in Indian carriers, the Civil Aviation Minister said the issue, on which a decision was taken earlier, did not come up before the GoM which was apprised of the issue.

"FDI (by foreign carriers) did not come before the GoM. I met Finance Minister (Jan 17). We are moving a note. Then it will be moved to the Cabinet. It is basically for allowing 49 percent FDI by foreign airlines. I expect this note to be sent soon," Singh said.

Asked about government infusing additional equity of about Rs 6,600 crore in Air India, official sources said this would also be done. Allowing the ailing national carrier to raise funds through government-guaranteed bonds or other means was "over and above equity infusion decision", they said.

Banks and financial institutions had proposed several measures to beef up Air India's net worth and these were among the measures approved by the GoM, the sources said.

Official figures show the debt-ridden carrier has outstanding loans and dues worth Rs 67,520 crore, of which Rs 21,200 crore is working capital loan, Rs 22,000 crore is long -term loan on fleet acquisition, Rs 4,600 crore is vendor dues besides an accumulated loss of Rs 20,320 crore. On jet fuel imports, they said the procedure for direct import of ATF and filling up the planes would be decided in the coming days.

Noting that flights were disrupted when oil companies suddenly stopped fuel supplies to airlines due to non-payment of dues, the sources said, "Some ways have to be worked out to see that this does not happen."

In the same vein, Singh also said that "we have to see if any step can be taken to avoid such situations. Now the airlines are given a three-month credit period by oil companies."

The sources said FDI was one of the key factors that would help the industry to survive the current financial crisis. A Committee of Secretaries has proposed a 49 per cent cap on FDI by foreign airlines. "We all know that the aviation industry is under a lot of stress. Allowing foreign airlines to pick up stake in Indian carriers would mark a major policy shift," Singh had said.

Earlier, foreign airlines were not allowed to invest in Indian airlines, though foreign direct investment of up to 49 per cent was allowed. While the Civil Aviation Ministry had suggested 24 per cent as the limit, the Department of Industrial Policy and Promotion (DIPP) had recommended 26 per cent.

At present foreign investment of up to 49 per cent is permitted in the aviation sector, apart from 100 per cent in MRO (maintenance, repair and overhaul), airports, helicopter and sea-plane operations, but foreign carriers are not allowed to invest in their Indian counterparts.