The Hindu Business Line : Customs duty anomalies `affecting' Avi-Oil's growth

ANOMALIES in the Customs duty structure are restricting the growth of Avi-Oil India Ltd in the fast growing civil aviation market. A joint venture of Indian Oil (25 per cent), Balmer Lawrie (25 per cent) and NYCO SA of France (50 per cent) , Avi-Oil was incorporated in 1993 for the indigenous production and supply of aviation lubricants to the defence and civil aviation sectors.

Though still considered the only manufacturer of such lubricants in India, the company has not been able to capitalise on the growth prospects available in the booming civil aviation sector. The situation, however, is the reverse in the defence sector, which is larger in size, where Avi-Oil caters to almost 95 per cent of the total requirement.

A company source said that as per the existing Customs duty structure, airlines having overseas operations can import lubricants at a mere two per cent Customs duty for the "maintenance of aircraft."

On the other hand, the domestic manufacturer pays a 15 per cent Customs duty plus additional duties, leading to a total incidence of 34 per cent on the import of base oil. In spite of recently commissioning a Rs 20-crore plant for synthetic ester , which is the base oil for manufacturing synthetic lubricants used in modern jet engines, the company still has a substantial 35 to 40 per cent import content in the final product.

Mr G. V. Krishnan, Vice-President of Avi-Oil, admitted that growth in the civil aviation sector was hamstrung by "some non-technical reasons" and that the company was trying to increase its sales by focussing on the technical superiority of its products.

He added that the company's sales in this segment were till now restricted to smaller airlines, which do not have overseas operations. "We are already successful in meeting the demands of the defence sector. But future growth will depend on civil aviation and we are working on that," he said. The company registered a turnover of Rs 40 crore in 2004-05.

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