Modi government working out relief package for airlines; Air India gets Rs 2,100 crore borrowing guarantee

In a breather to Indian aviation industry, which is reeling under rising fuel prices, low fares and high taxes, the government is working on a relief package for the airlines to help them cut costs and cope with depreciating rupee. While speaking on the sidelines of the International Aviation Summit organised by the International Air Transport Association, Civil aviation secretary RN Choubey said that the ministry is holding discussions with the finance ministry on the kind of support that can be provided to the domestic carriers.

“A fall in rupee hits us badly as all our aircraft leases are on dollar term. And our operating costs are hit by rise in fuel price,” he said. Choubey however did not provide details of the proposed relief package for the industry.

On the other hand, Choubey also said that the government has decided to provide a sovereign guarantee to the beleaguered carrier Air India to raise up to Rs 2,100 crore, according to some media reports. The centre will also make a fresh equity infusion of Rs 860 crore in the airline, Mint reported. Choubey however added that this will be over and above Air India’s turnaround plan in 2012.

Furthermore, he stated that the civil aviation ministry is also in the process of pushing to bring aviation turbine fuel, which accounts for about 30-40% of the total cost of an airline, under goods and services tax (GST) ambit. At present, airlines has to pay GST on air tickets and can not claim credit due to non-inclusion of ATF in GST regime.

Meanwhile, IATA’s director general Alexandre de Juniac said that India is violating its international obligations by levying GST on international tickets. Presently, a tax of 5% to 12% is levied on economy and business class air tickets under the GST regime.

As per the recent study by CAPA India, airlines in the country are expected to incur a combined loss of upto $1.9 billion in the current financial year, on the back of rising fuel costs, weakening rupee and low air fares, from a January estimate of a loss of $430 million to $460 million

It also said that domestic airlines have not increased the air fare to compensate the higher costs, and except Indigo, no other airline in the country has strong enough balance sheet to withstand higher costs and lower yields.

India is considered as one of the cheapest domestic airline markets in the world. Minister of State for Civil Aviation Jayant Sinha, while speaking at the event, also said that traveling in an auto rickshaw in India is presently costlier than air travel.