After choppy ’12, hope floats for airlines

With KFA grounded & AI hit by labour unrest, govt allowing foreign carriers to invest in domestic airlines was a silver lining

After a miserable 2011, the Indian aviation industry continued to fly through turbulence in 2012 despite some relief on the policy front with direct import of aviation fuel being allowed and the government finally permitting foreign carriers to invest in domestic airlines. There is some optimism for 2013 with yields improving and interest from

foreign carriers to invest in India increasing.

The year began with Ajit Singh taking charge at the civil aviation ministry and, soon after, the government ceding to the industry's demand to allow direct import of aviation turbine fuel (ATF).

On February 22, the Directorate General of Foreign Trade allowed direct import of ATF by airlines in a move that was expected to ease spiraling fuel costs for airlines. However, infrastructural issues have meant that, till date, no airline has started importing ATF. Soon after the decision was announced, experts said that without support from oil marketing companies for infrastructure to import ATF, the benefit would be limited.

"The actual benefit, if any, would be limited and much less than the current anticipation of 10% fuel cost savings," said brokerage firm HSBC Global Research in a research note released on February 19.

"Fuel cost-saving greater than 5% is unlikely in our view as fuel price is rising and, in all likelihood, airlines would benefit only on a portion of their total fuel consumption as opposed to the general expectation of the entire fuel usage."

The government also allowed the aviation industry to borrow up to $1 billion via external commercial borrowings in an attempt to bring down the burden of high interest cost due to their high debt burden. While Air India tried to borrow from overseas banks, the sentiment towards the Indian aviation industry was so bearish that no one wanted to lend to the sector.

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