Air India bank guarantee rule puts cargo agents in a spot

Air cargo agents dealing with Air India are in shock with the national carrier insisting on bank guarantee to carry on board cargo booked by them.

The fear is that other carriers may follow suit saddling agents who clear export and import cargo for consignees saddled with high costs.

Small time agents, mostly family run, dealing only with Air India will be forced to leave the business due to shortage of working capital or they will have to move to other carriers, say sources. If other carriers follow, it could mean ‘disaster for us,’ said an agent.

Air India has fixed the bank guarantee amount based on last six months’ productivity with an average of three fortnights’ productivity. The demand for bank guarantee follows payment default by an agent in south. The carrier wants bank guarantee from agents who have already provided one to International Air Transport Association (IATA) to ensure that in case of any default, it can be invoked by the carrier. “Providing two bank guarantees will be difficult when we are operating in wafer-thin margin,” said the agent.

The Air Cargo Agents Association of India told Air India management that seeking bank guarantee will put small and medium size agents in financial difficulty. It has asked the carrier to keep the decision in abeyance till March 31. B Govindarajan, Chief Operating Officer, Tirwin Management Services, a Chennai-based aviation consultancy company, said t the air cargo agents are mostly family run and are already facing challenges like high cost of operations and increased competition from multinational companies. They do business on behalf of IATA member airlines and honour their financial commitments.

While Air India is legally empowered to seek bank guarantee, the question is whether it took the decision after evaluating its impact on the Indian air freight forwarding as well to itself. “One also wonders whether Air India, that suspects the credibility of Indian IATA agents, would apply the same yardstick to IATA cargo agents who do business for Air India in foreign station,” he said.

The minimum prevailing cost for a bank guarantee is 1.5 per cent per annum. Additional collateral needs should be provided, he said.

Air India provides cargo operations over 58 domestic and 29 international stations.