The Hindu Business Line : Oil cos issue notice to airlines on aviation fuel dues

Liquidity crunch
If the airlines are unable to clear their outstanding dues, the oil marketing companies may be constrained to supply ATF on a cash and carry basis
Domestic airline industry maintains that current flight schedules will not be immediately affected due to the latest request of the oil companies

Richa Mishra
Ashwini Phadnis

New Delhi, Oct. 12 Faced with a liquidity crunch, the public sector oil retailing-cum-marketing companies have asked domestic airlines to clear their dues for aviation turbine fuel (ATF) already purchased, failing which supplies will be suspended. Supplies are currently available on a credit basis.

The three oil companies – Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation – have served a joint notice to domestic airlines asking them to pay their outstanding dues by October 22 if they want ATF to be supplied on a credit basis, official sources told Business Line.

If the airlines are unable to clear their outstanding dues, the oil marketing companies (OMCs) may be constrained to supply ATF on a cash and carry basis. Earlier, the domestic airlines were asked to clear their outstanding dues by October 14 but later, the deadline was extended by about two weeks. The three companies together supply close to 4.5 million tonnes a year of jet fuel to the domestic and international airlines.

A senior OMC official said, “We don’t want to disturb the existing credit mechanism, which allows airlines to fuel up and pay at the end of a stipulated time. Therefore, we have asked the airlines to pay the outstanding (amount) which has arisen as they were beyond the approved terms of the contract. This includes the airlines exceeding the credit time line (the airlines were going beyond the contracted time frame for payment).”

The oil companies are considering such a move to overcome the prevailing liquidity problem. “This is the first step of cutting down on credit and discounts. A similar method has been adopted for large volume diesel customers also,” the official added.

Unlike auto and cooking fuel prices, the price of jet fuel is market determined and revised on a monthly basis depending on the international price of the product. The OMCs incur revenue loss on selling petrol, diesel, LPG and kerosene at controlled prices.

In the last two months, the OMCs have reduced ATF prices by almost 20 per cent in line with international prices. However, the aviation industry has often complained about the high domestic price of aviation fuel. At a meeting with the Prime Minister, Dr Manmohan Singh, in June this year, industry leaders pointed out that while the Government provides 77 per cent subsidy on kerosene, 47 per cent subsidy on diesel and 29 per cent on petrol, the ATF rates for domestic operations were 60-70 per cent higher than international benchmarks.

During the current month, domestic airlines are paying Rs 58.48 a litre down from Rs 61.83 in the last month in Mumbai, while in Delhi, it costs Rs 56.48 a litre (Rs 59.65).

Meanwhile, the domestic airline industry maintains that current flight schedules will not be immediately affected due to the latest request of the oil companies to clear outstanding dues. “The aircraft have to keep flying so that the airlines can generate monies. Like in any other industry, most domestic airlines will also look to delay all non-essential payments which can be rolled over and meet the demands of the oil companies,” said the head of finance of a leading domestic airline.

Apart from paying aviation fuel bills, expenditure towards salaries and aircraft leasing is being viewed as essential cost by most airlines.

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