GoM meeting on investment cap, ATF import and Air India’s FRP later this week

To help the ailing airline industry, a Group of Ministers (GoM) is likely to meet later this week to discuss the issues concerning the aviation sector. The GoM is likely to take a decision on investments limits in Indian carriers by foreign airlines, direct import of jet fuel by Indian carriers and Air India's financial restructuring plan. There is a common consensus on the fact that the ailing Indian aviation industry needs assistance to come out of its financial debt. It had been suggested that the government should allow foreign investments by international carriers in the Indian airline industry to help the industry to survive the current financial crisis.

Earlier, foreign airlines were not allowed to invest in Indian airlines though foreign direct investment (FDI) of up to 49% was allowed. A Committee of Secretaries has proposed a 49% cap on FDI by foreign airlines. But earlier, the Civil Aviation Ministry had suggested 24%, while the Department of Industrial Policy and Promotion (DIPP) had recommended 26%. At present, foreign investment of up to 49% is permitted in the aviation sector, apart from 100% in MRO (maintenance, repair and overhaul), airports, helicopter and sea-plane operations, but foreign carriers are not allowed to invest.

Another topic of discussion would be the direct import of jet fuel by Indian carriers. The expenditure on jet fuel accounts 40-50% of an airline’s total operational cost and the airlines have demanded that they be allowed to import fuel to escape the heavy sales tax levied by states. The petroleum ministry is understood to have raised objections to the proposal but the Committee of Secretaries is said to have recommended the direct import.

The GoM shall also be discussing, the cash-strapped, Air India’s financial restructuring plan (FRP) and turnaround plan (TAP). A decision on injecting additional equity into the national carrier is also likely to be taken up. 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, according to official figures.

A panel of secretaries has recommended that Rs 23,000 crore be infused into the cash-strapped national carrier over the next 10 years, of which Rs 6,600 crore could be injected in the current fiscal ending March 31. As per its aircraft acquisition plans, Air India has already placed orders for 27 Boeing 787 Dreamliners and decided to take them on sale and leaseback mode. Under the leaseback mode, an airline purchases aircraft from the manufacturer and sells them to a leasing company and then gets the planes back on lease. This erases the aircraft purchase debt from the airline’s books. The first of these planes are expected to be delivered by March.