Fuel import logistical ordeal for SpiceJet

Two months after the government allowed airlines to import aviation turbine fuel (ATF), budget carrier SpiceJet on Tuesday became the first airline to apply to the Directorate General of Foreign Trade seeking permission to procure jet fuel from overseas oil companies.

But even as the Kalanithi Maran-owned airline made the first move, most are sceptical whether importing jet fuel is the best solution to the mounting cost of ATF due to high sales tax levied by state governments.

According to Kapil Kaul, CEO - India & South Asia - Centre for Asia Pacific Aviation (CAPA), government’s move to let airlines to import ATF was a good gesture for sending a signal that it was committed to finding a solution to the vexed issue but was not practical.

“The announcement (to permit ATF import) was good for sending a signal that it was serious about reducing the burden of airlines but it is not practical,” said the head of the global aviation consultancy firm.

Kaul believes any attempt by airlines to directly import ATF would be a logistic nightmare for them.  Currently, oil companies import the fuel and distribute it to airlines through their network.

For long, airlines have been lobbying for reduction in sales tax on ATF - ranging between 4% and 30% - as it was inflating their operating cost. Fuel constitutes 40-50% of an airline’s total operating cost. While the central government has been sympathetic to airline’s demand, state government is not ready to give up revenues earned from the levy.

“There are other options the government is looking at. If they (the government) are okay with states losing revenue by allowing ATF import, they can take a much easier route of bringing the ATF under declared goods (which attracts a lower tax rate),” said Kaul.

He also fears states may try to recoup the lost revenue from ATF sales tax by imposing entry tax or any other form of levy on the airlines. Kaul also doubts whether cash-starved airlines would be able to pay upfront for import of fuel.  Currently, all oil marketing companies (OMC) offer credit facility to airlines unless they default on payments.

A senior executive of rival airline IndiGo, who did not want to be named, also believes importing jet fuel is cumbersome and long-drawn and therefore his company was not considering it.

“It would impossible to do (import ATF) it,” he said.
Experts estimate SpiceJet could save 5-6% of its fuel cost by importing it besides wiping off the entire sales tax cost.