Policy on import of jet fuel silent on logistics

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Wed, 08 Feb 2012 08:18:39 GMT

Policy on import of jet fuel silent on logistics: Experts

Airlines welcomed the decision of a ministerial panel to allow direct import of fuel, but aviation experts said several questions remained unanswered, particularly on logistics, as airports don’t have private fuel storage facilities.

“The news is very positive for the airline industry. But we have to see how the airlines will import the fuel. Do they have the cash to do so,” said Sharan Lillaney, aviation analyst at Angel Broking, reacting to the decision Tuesday.

“There are other questions as well: Where will they store the fuel? Will they use the infrastructure of oil marketing companies? Will oil companies allow that? So, there needs to be clarity on these things first,” Lillaney told IANS.

A group of ministers headed by Finance Minister Pranab Mukherjee Tuesday decided to move the cabinet with a proposal to allow airlines to directly import aviation turbine fuel to help them save on taxes and thereby cut their operational costs.

Several airlines have been facing one of the toughest times and wanted the government to help them out by permitting direct import of jet fuel that was now accounting for close to 50 percent of their operational costs.

‘We have applied officially to the commerce ministry for direct import of fuel. If we import fuel directly for our own use we become an actual user. Therefore, we won’t have to pay sales tax and other levies,’ Kingfisher Airlines chairman Vijay Mallya had said.

According to Amber Dubey, director aviation at global consultancy firm KPMG, airline companies may initially need to depend on oil marketing companies for infrastructure and expertise, since the business of jet fuels is a complex one.

‘Plus, an airline cannot get into trading business and sell the same to other airlines. We are likely to see new models of collaboration between airlines, oil companies and providers of logistical service providers in the near future,’ Dubey told IANS.

At some airports like in Mumbai, there is no scope for private firms, or airlines, to set up additional facilities to store and vend jet fuel due to space constraints. But land is available in some others like in Hyderabad and Delhi, experts said.

At present, the government’s foreign trade policy holds jet fuel as a restricted item for private import, which can only be brought in through authorised companies. It was also not clear if domestic oil retailers can sell jet fuel at international rates.

Source: IANS

Aviation stocks rally after direct jet fuel import allowed

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Tue, 07 Feb 2012 16:03:26 GMT

Aviation stocks rally after direct jet fuel import allowed

Mumbai: Scrips of three listed domestic carriers — Jet Airways, Kingfisher Airlines and SpiceJet — rallied after the government Tuesday allowed airlines to import jet fuel directly.

Aviation stocks rally after direct jet fuel import allowed

The decision on direct jet fuel imports was taken by an empowered group of ministers (EGoM) headed by Finance Minister Pranab Mukherjee.

Analysts said the move, announced by Civil Aviation Minister Ajit Singh, would help airlines to cut 10-15 percent of their operating cost.

The move will enable airlines to directly import jet fuel as an end user, thereby saving sales tax, which ranges between 20-35 percent and is levied by state governments.

The Indian aviation sector been reeling under rising aviation turbine fuel (ATF) prices caused by high sales tax and other levies. Domestic airlines are estimated to have lost around Rs.3,000 crore in the first six months of this fiscal.

Mumbai: Scrips of three listed domestic carriers — Jet Airways, Kingfisher Airlines and SpiceJet — rallied after the government Tuesday allowed airlines to import jet fuel directly.
This is very positive news for the industry. The airlines can be able to save up to 10-15 percent of their operating cost as jet fuel accounts for nearly 50 percent of the cost,’ Sharan Lillaney, aviation analyst, Angel Broking told IANS.

‘The decision will help the airlines to break-even, pay back the oil marketing companies.

The scrip of Vijay Mallya-led Kingfisher Airlines hit an intra-day high of Rs.30.90, up 20 percent from Monday’s close of Rs.25.75 at the Bombay Stock Exchange. The stock was hovering around Rs.28.50 in afternoon trade.

The Jet Airways stock too gained 18.06 percent and touched a high of Rs.351.90 from the previous close of Rs.298.05. The stock was Rs.336.90 around 2.30 p.m.

Budget carrier SpiceJet also gained 19.51 percent at BSE and touched an intra-day high of Rs.29.40 from the previous close of Rs.24.60

Analysts, however, said more clarity was required as to how airlines would manage the logistics of storing and importing fuel.

‘We have to see how the airlines will import the fuel, do they have the cash to do so, where will they store the fuel, will they use the oil marketing companies’ infrastructure or not. So there needs to be clarity on these things first, besides this, the news is very positive,’ said Lillaney.

Airlines have not yet come out with any logistics plan for storing and importing the fuel. This was one of the arguments by the three oil marketing companies Hindustan Petroleum, Indian Oil and Bharat Petroleum, who were opposing the move.

ATF is currently sold at Rs.71,155.22 per kilolitre (kl) in Kolkata, at Rs.67,702.21 per kl in Chennai, at Rs.63,864.31 per kl in Mumbai and Rs.62,907.82 per kl in New Delhi.

The average fuel price in cities like Kuala Lumpur is around Rs.41,000 per kilo litre, followed by Singapore at Rs.42,000 and Dubai at Rs.43,000.

Source: IANS