Saturday, March 17, 2012

'Importing jet fuel is fine, but where will you store it?'

Though the Budget apparently gives instant relief to ailing airlines by allowing for direct import of ATF, experts argue that lack of infrastructure would negate the good news

The high-flying proclamation in the Union Budget '12 that the government would accept the proposal of cash-strapped airline carriers for directly importing aviation turbine fuel (ATF) to reduce oil costs is just white noise, aviation experts said.

With no infrastructure to import and store the oil, the pronouncement will make little difference, they observed.

Finance Minister Pranab Mukherjee announced that the aviation industry was in dire financial straits and as the operating cost is largely owed to the high fuel cost -- which ailing carriers have been making a hue and cry about -- the government decided to permit direct import of ATF to cut costs.

Former Air India MD Captain DS Mathur said, "No doubt, this budget is immediate oxygen for the ailing aviation sector. The government has addressed the concerns of carriers. But the main challenge lies in implementation. We will have to see how the government addresses the 'ifs and buts' pertaining to the new announcements. The big question is, how will ATF be imported and stored, as the infrastructure for the same lies with state-owned oil companies."

Captain Mohan Ranganathan, top aviation expert, agreed. "Permitting the import of ATF is good but how will it be imported and where will it be stored. I don't think the budget would make a big impact on the health of the Indian aviation industry," Ranganathan said.

The provision of increasing the service tax from 10 to 12 per cent will make the airfare costlier, up by Rs 200-300. However, the limit of duty-free baggage allowance for Indians travelling abroad has been raised.

Allowance for adults has been marked up from Rs 25,000 to Rs 35,000 and for children from Rs 12,000 to  Rs 15,000.

"If it is just a hike of Rs 200-300 in total, I don't think any passenger will be affected. Increase in duty-free baggage allowance is good news as people spend so much on foreign tours but cannot shop because they do not want to pay the heavy duties," said Ashutosh Mishra, senior manager with a leading corporate industry.

Air India employees are pleased. Having not got salary and allowances for the past 3-5 months, an AI commander said on condition of anonymity, "I hope we get the salary as the government has decided to pump Rs 4,000 crore in the airline."

'Welcome changes'
Vijay Mallya, chairman of loss-making Kingfisher Airlines, welcomed the budget.

"External Commercial Borrowing for working capital is welcome. Interest costs and hedging costs will be much less than rupee-denominated costs. Direct import of fuel, announced earlier but confirmed now, will greatly reduce fuel cost. Permitting foreign airlines to invest up to 49 per cent as and when will be good," Mallya said. 

Rs 35,000
Duty-free baggage allowance for adults

Rs 15,000
Duty-free baggage allowance for children up to 10 years

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