Severe liquidity crunch is forcing airlines to push back the payment schedules of vendors, especially of oil marketing companies.
BANGALORE: In a reminder of the situation in the mid-1990s that eventually led to the winding up of several airlines, severe liquidity crunch is forcing many airlines to push back the payment schedules of vendors, especially of oil marketing companies that supply aviation turbine fuel (ATF).
Speaking on condition of anonymity, a senior executive of state-owned Indian Oil Corporation Ltd said that, over the last six months, the dues of airlines were mounting as they failed to meet their commitment.
An executive from Bharat Petroleum Corporation Ltd also revealed that airlines had started faltering on their schedules. “Yes, of late airlines are delaying payment due to shortage of working capital,” he said.
However, both the state-owned companies refused to disclose any further details. They blamed the inability of the airlines to make payment on time on aggressive fleet expansion and price undercutting, which was eroding yields, and, thereby, squeezing their working capital.
“As they meet their commitment on payment for aircraft orders, they are delaying our payment. Also, since they are resorting to price undercutting, they are not able to raise enough funds from operations to meet their working capital needs,” said an IOC executive.
Though fuel prices have eased to some extent this month, the fuel cost of an airline constitutes around 40% of its operational costs. “Of this 40% fuel cost, one-third goes as sales and excise duty in most metros,” he said.
An aviation expert said that the current working capital crunch was a reminder of 1994, when airlines like Damania, Modiluft and East West had to close shop one by one as they could meet their commitment to their suppliers and service providers.
At present, airlines rely on banks and financial institutions to meet working capital requirements.
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