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The sops provided by the government for the aviation sector may just be a “feel good factor” but “not relevant” in reality, aviation analysts feel.
“The proposal for external commercial borrowings (ECB) for the working capital might not be such a good news as you need a good credit rating and balance sheet which can help raise funds. Indian carriers have huge debt and interest burden, continuing losses, mostly a negative net worth and some have business model issues,” Mr Kapil Kaul, CEO, Centre for Aviation Pacific Aviation, told Business Line.
“Preliminary estimates are that this may save 150-300 basis points for working capital loans for airlines. But the major challenges would be the banks’ reluctance to lend to the sector and the hedging costs,” said Mr Amber Dubey, Director – Aviation, KPMG.
Aviation experts feel that only those airlines that have higher dollar revenues are likely to benefit from the move as the repayment of the principal costs is in dollars. The ECB route was taken only for the aircraft procurement purposes till now.
Mr Kaul said that the increase in service tax and excise duty (on ATF) will further increase cost challenges. CAPA expects a very hostile cost environment in FY12-13 due increasing volatile fuel prices, depreciating rupee and increased airport charges, he added.
However, the airline industry feels that the move may bring in relief for the ailing aviation sector. The national carrier Air India said that it was a “welcome move” and it will help reduce borrowing costs for airline companies. “The provision of Rs 4,000 crore as equity support to Air India as part of the Plan outlay is a welcome relief,” Mr S Venkat, Executive Director – Finance, Air India, told Business Line. Commenting on the budget, Mr Vijay Mallya tweeted: “Good, balanced and pragmatic budget announced by FM.”
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