Wednesday, January 11, 2012

Ajit Singh rules out bailout for private airlines

NEW DELHI: Civil aviation minister Ajit Singh on Wednesday ruled out bailout for private airlines amid demand for government support from carriers such as Kingfisher. At the same time, the newly-appointed minister offered full backing to Air India, the struggling public sector airline, saying it is the government's "obligation".

"AI is a public sector unit, so government has an obligation . But there as well, AI will have to become competitive. It will have to restructure its costs in line with the industry as a whole because government cannot keep pouring money," Singh said after laying the foundation stone for Delhi airport's new ATC tower.

Fearing continued losses, banks have gone back on their decision to restructure loans to the tune of Rs 21,000 crore to the national carrier. "There was a hitch in the plan given by SBI Caps, but I think it will work out," Singh said. AI has total debt of Rs 43,777 crore, and owes to oil companies, airport operators and other vendors.

Singh is making a case for rationalizing taxes on jet fuel and batting for an improved climate for airlines. While ruling out a bailout, Singh said that private airlines like Kingfisher must make a sound business plan and seek loans. "It's a private enterprise and the banks can only lend if they are satisfied with the business plan of the company."

The statement will come as a blow to several private players that are dealing with losses. The remark indicating the approved FDI may be higher than the aviation ministry's original plan of 24% sent aviation stocks zooming.

According to sources, the FDI that actually gets through may be as high as 49%. Jet stock closed 7% higher on BSE on Wednesday at Rs 203.50. Kingfisher and SpiceJet closed 4.3% and 5.5% higher, respectively , at Rs 22 and Rs 19.20.

"Finally , the cabinet will take the decision. The committee of secretaries has already recommended raising the FDI limits in the sector," he said.

A few hours after Singh's statement Kingfisher Airlines chairman Vijay Mallya told reporters that the government should permit foreign airlines to hold 49% in Indian carriers. "This is not like FDI in retail. This is already permitted. But why should you restrict a foreign airline? What is the sense? (Foreign investment in) Airport 100% is allowed. Why make 26%? Why restrict?" he said after a meeting with the director general of foreign trade.

The meeting was described as a "follow-up" to the proposal to directly import jet fuel. From all indications, the commerce department seemed inclined to permit Kingfisher to ship aviation fuel although oil companies are learnt to have opposed the proposal. A final decision is expected to be taken up next week.

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