The Hindu Business Line : Flying out of turbulence

The Government’s decision to allow major airlines — Jet Airways, Kingfisher and Air India — to settle their outstanding fuel dues over six- monthly tranches and extend a 90-day credit facility on current fuel bills should help shore up their cash flows and keep them flying. Airlines, in general, have been caught in a vortex of rising fuel prices, intense competition and falling air traffic prompted by the on-going slowdown. Indeed, a third of the industry ’s net worth of Rs 30,000 crore has been wiped out already. Just how beneficial is this concession now?

The reprieve is time that the airline companies should use imperatively to rework their extravagant cost structure; cheaper fuel alone will not make operations viable. Already, Jet has trimmed global flights, there is talk of leasing aircraft and Kingfisher has slowed down its fleet expansion. The operational alliance between Jet and Kingfisher offers scope for further economies, but inevitably these will mean narrowing routing, scheduling and fare choices for passengers. The airlines, defaulting on fuel dues of Rs 2,926 crore to the oil companies, had been seeking a waiver but very sensibly, the Government has instead chosen to persuade the oil companies to grant an extension of credit to March. The fact that oil companies too are in a bind with banks becoming cautious about lending to them has been weighed carefully. Hopefully, North Block’s efforts at injecting liquidity will change that attitude in the banking system. The Civil Aviation Ministry has also agreed to revise ATF prices every 15 days instead of the current monthly revisions. The current problem, of course, is not with the periodicity of change as much as the price level itself: domestic ATF prices are at least 50 per cent more than global prices and a downward revision brooks no delay. There is also merit in the demand for reduction of sales tax on ATF that adds considerably to its price in many States.

By turning down the air carriers’ plea for waiver of dues and the Federation of Airlines’ bailout request of Rs 5,000 crore, the Government has nipped a possible moral hazard in the bud. Equally, that the Petroleum and the Civil Aviation Ministries could hammer an agreement sets a precedent for better administration. Consensual deliberations not only between Central Ministries but also with States will create better and more transparent public policies.

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