With the combined accumulated losses of the domestic airlines piling up to Rs 49,000 crore, the civil aviation ministry has started working on a “financial bailout package” for the sector, under which it’s exploring possibilities of offering loans at lower rates for working capital through the state-owned banks, a ministry official official told FE.
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“There are many airlines like SpiceJet and Jet Airways that are facing severe stress. While we want them to compete in a free market, we do not want more airlines to go the Kingfisher route. Most players operate under a thin margin of 5% and there are many factors in the market that are not in their control,” said the official.
“We have discussed the plan with the civil aviation minister. We are thinking of a package where loans could be offered to airlines at 7-8% that will help them meet challenges like access to the working capital. We could also allow more low-cost foreign borrowings. There will be other aspects also, and we have told the airlines to submit a memorandum to this effect,” the official added.
The ministry expects to form a comprehensive plan over the next month and subsequently seek the approval from the finance ministry.
With most airlines reporting heavy losses in FY14, a bailout package is seen as a timely help. Jet reported losses worth Rs 4,200 crore, Spicejet Rs 1,003 crore and Air India over Rs 5,000 crore. However, analysts feel these are just temporary measures, since there are several other areas that the government could address to help the industry, like reducing high airport charges and taxes on jet fuel.
Spicejet, which has debts worth over R1,700 crore, is currently in a row with aviation regulator DGCA, which is conducting an audit on the back of reports that the airline is not maintaining adequate inventory of spare parts. The airline has also not cleared various dues like service tax and airport charges. In fact, DGCA is also conducting an overall financial audit of all the airlines for which it had told them to submit the data last month.
The aviation ministry has also called a meeting on August 21 to develop a consensus on reducing VAT on jet fuel across the states to 4%. Currently, VAT on jet fuel (a state subject) is around 28-30% in most states, though Madhya Pradesh, Jharkhand, Chhattisgarh and West Bengal have cut rates already. “Andhra Pradesh will soon join the list by announcing 0% VAT on jet fuel. We want other states to follow, so that they can attract business from the airlines,” the ministry official said.