Govt oil cos asked to extend credit line to AI
New Delhi   19-Jul-2010

THE government is banking on the public sector oil companies for a helping hand to bail out loss- making Air India.

It has asked the oil companies to extend a liberal credit line to Air India so that the struggling national carrier can keep its planes flying. According to reliable sources, Air India's unpaid fuel bills with market leader IndianOil (IOC) have piled up to Rs 1,230 crore.

IOC chairman B. M. Bansal told MAIL TODAY that this is not a major problem as the government has assured the company that the payments will eventually come through. Since it is a government-owned airline we have to help it out in its hour of need, he added.

Apart from IOC, which is the leading supplier of jet fuel, Air India also has outstandings with Bharat Petroleum Corporation Ltd ( BPCL) and Hindustan Petroleum Corporation Ltd ( HPCL), which could take the total arrears to the vicinity of Rs 2,000 crore. Earlier this year, the oil companies had threatened to put Air India on "a cashand- carry basis", which meant the airline would not get any fuel unless it paid for it in hard cash.

However, with the government asking the public sector oil companies to "take it easy", the Maharaja can breathe easier.

Jet Airways also owes Rs 830 crore to IOC on account of fuel bills but the credit has been extended against a bank guarantee. The public sector oil companies are sticking to the petroleum ministry's prescribed norms in their dealings with private commercial airlines.

HPCL had landed in trouble after extending massive credit to Kingfisher Airlines in violation of established norms.

A fresh set of deadlines were issued to Kingfisher, which the loss- making private carrier is finding it difficult to meet. Vijay Mallya's Kingfisher owes only Rs 10 crore to IOC Oil as it draws its fuel mainly from HPCL and BPCL, both Mumbai- headquartered companies. The oil firms have turned very cautious in their dealings with private airlines as HPCL has landed in trouble for piling up huge unpaid fuel bills of Kingfisher.

Expenses on jet fuel constitute around 35 to 40 per cent of the operational cost of commercial airlines and any credit on these bills comes as a breather for airlines. As air traffic has been picking up in recent months and airlines worldwide are struggling to come out of the red. However, the problem is that jet fuel prices have also been shooting up since March this year, which makes the recovery that much more difficult.

In India, the problem is compounded as cash- strapped state governments charge huge levies on jet fuel to raise revenue. As a result, the cost escalates further. The public sector oil firms revise prices of jet fuel on the first and 16th of every month based on the average international price of the previous fortnight. Prices of jet fuel in the country have been raised eight times since March.