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Tax relief, loan recast to bail out airlines industry
November, 15th 2011

At least three central ministries are drafting measures to bail out the beleaguered airlines industry after Prime Minister Manmohan Singh vowed government help for loss-laden Kingfisher Airlines.

The civil aviation ministry, which will put together the proposed relief package, has asked the ministries of petroleum and finance to take action on some of its earlier suggestions, an official told ET.

The package could include lower fuel and service taxes, allowing foreign carriers to invest in domestic airlines and debt restructuring.

Two days ago, aviation minister Vayalar Ravi had written to all the chief ministers requesting them to lower taxes on aviation fuel, while agreeing to the proposal to allow investment by foreign airlines. States have been urged to tax fuel on a per-litre basis instead of ad valorem, ensuring that levies do not rise in tandem with fuel prices.

The ministry is also working on creating an economic regulator for the sector after domestic carriers complained about some players pricing tickets below cost, forcing others to do the same.

"The airlines had made this request through the Federation of Indian Airlines, saying that pricing below cost is causing private carriers to collectively lose 20 crore a day. So we are looking at forming such a framework that can address predatory pricing," a ministry official said.

The finance ministry is willing to consider debt restructuring for the whole aviation sector only if airlines go for further consolidation through mergers and acquisitions, a ministry official said. This is despite RBI's reluctance to undertake any second restructuring for a sector, at a time when there is an overall stress in the economy, he said.

The aviation ministry will ask the petroleum ministry to allow oil marketing companies to provide a common access system at airports for fuel supply.

The government has also asked Airports Authority of India to go slow on demanding dues from Kingfisher. Vijay Mallya-owned airline owes around 210 crore to the authority, a senior official said.

"So in some form there is this respite given so that the airline can pay off its creditors for continuing operations," the official said.

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