Kingfisher to save Rs 600 cr with direct jet fuel imports
July, 02nd 2008
UB group-owned Kingfisher Airlines aims to save at least Rs 600 crore with direct import of aviation turbine fuel through oil companies. It will kick off the arrangement with Reliance Industries (RIL) in two weeks. Direct imports will attract customs duty, but no sales tax, since it is not considered as sale, UB group chairman Vijay Mallya told ET. Kingfisher will meet 60% of its requirement through this channel, he added.
The oil companies will act as handling agents, using their infrastructure at various locations for pumping imported fuel on behalf of the airline.
Kingfisher Airlines, as Indias biggest aviation group, offers me the scale and size to go for direct imports. My business consumes roughly 700 tonnes of fuel, and I am planning to leverage on this for saving at least Rs 600 crore in the current financial year.
Mr Mallya did not disclose the price at which Kingfisher would strike these deals. Mr Mallya said Kingfisher had even thought of importing fuel from the Middle East on leased air tankers. I am only using my rights and the economic benefit to bring in a difference to the operational dynamics of Kingfisher, which is targeting break-even in the next financial year, he added.
States were charging the same rate of sales tax when oil was at $37 per barrel, and when oil is now at $140. Is there any justification? Kingfisher is forced to leverage on its size to save costs. I have no issues with states like Kerala and Andhra Pradesh charging up to 4%, but higher levels in markets like Mumbai, Delhi, Bangalore and Chennai is posing a problem, Mr Mallya said. Delhi levies 20% sales tax, while Mumbai imposes 25% sales tax on jet fuel.
We keep talking about domestic airlines making $2 billion (Rs 8,000 crore) losses. Estimates show that overtaxation and imposition of sales tax, accounts for nearly $1 billion of this losses, Mr Mallya said, demanding government help similar to what US did to rescue its aviation sector post 9/11.
However, rivals are sceptical. Jet Airways said it had studied direct imports, but shelved it as oilcos quoted a high rate for refining, distribution and logistics. Even if Reliance imports ATF for some airline, how will it distribute at different airports, considering they dont have facilities in all metros? Besides, if some airline takes fuel from Reliance in Mumbai, it may be denied fuel by IOCL at Dibrugarh as the latter has a monopoly there, a Jet official said.
A SpiceJet official said: Imported ATF certainly works out cheaper, but distribution cost would be so high that it seems a theoretical exercise. But certainly when we come to know about its feasibility we would think of it.