As the civil aviation sector in India continues to be in the red (barring IndiGo Airlines Jet Airways and Spice Jet), the government is looking at ways to bring down the cost of aviation turbine fuel (ATF) by reducing state taxes that are levied on the product.
At present, ATF costs in India are about 60-70 per cent higher than anywhere in the world and is among the prime reasons for losses incurred by the airlines in the country.
A committee of secretaries, which was constituted after Civil Aviation Ajit Singh took over in December and headed by the aviation secretary to look at ways to bring down the ATF prices, has suggested that the product be given ‘declared goods’ status as it would then attract only 4 per cent sales tax as against a varying sales tax that ranges between 4 and 30 per cent that is charged by different states.
The committee, sources said, has also written to the Prime Minister as well as the Finance Minister reiterating that declared goods status to ATF will help the sector come out of the red. Especially at a time when state-run carrier Air India was saddled with debts and losses to the tune of over `24,000 crore, of which it owed over `3,000 crore to state-run oil marketing companies. And also private carrier Kingfisher Airlines, which has debts and losses amounting to `7,000 crore.
Ajit Singh had recently told media after a consultative meeting in Bangalore that “the main issue hurting the balance sheet of airlines is that ATF costs account for over 45% of an airline’s operating cost. ATF cost in India is about 60% to 70% more than that in our neighbouring countries as well as the US, partly because it’s not a notified product.”
He added the imposition of taxes ranging from 4% to 30% by state governments on ATF is an added burden.
“We are trying to make it a notified product and are in dialogue with the oil ministry,” Singh has said.
Meanwhile, global civil aviation consulting firm Center for Asia Pacific Aviation (CAPA) in its latest report has said, “The global aviation industry could report losses of $5.3 billion in what is set to be another tough year in 2012 amid weak global GDP growth and rising fuel costs. Average oil prices could reach as high as $135/bbl in 2012, according to IATA’s ‘oil spike’ forecast for 2012. However, the industry body’s ‘central forecast’ outlines an expected profit decline from $3.5 billion to $3 billion in 2012 for an “anemic” 0.5% profit margin, based on fuel prices at $115/barrel.”
Of the total losses by airlines globally all Indian carriers put together have a combined loss of nearly `2 billion.