Cash-strapped aviation sector looks forward to Budget session

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The cash-starved airline industry is looking forward to the ensuing budget with great expectations as it desperately wants changes in the FDI policy on aviation and more tax sops to help reduce the high debt and cost burden.

The budget may, however, bring some good news for ailing Air India with the government likely to consider a support package of about Rs 10,000 crore, including additional equity infusion of Rs 6,600 crore.

While the government has already taken a major policy initiative to allow the debt-ridden industry to directly import jet fuel, the beleaguered airlines are seeking 'infrastructure status' to the industry to lower the incidence of taxation.

The government has also favoured changing the policy to allow investments by foreign airlines in Indian carriers, but it is yet to be notified.

With Kingfisher Airlines and Air India being the worst- hit, industry sources said the Indian carriers, which were starved for cash and burdened with a combined debt of around Rs 50,000 crore, desperately needed to raise equity to remain afloat.

The government should look at further easing investment norms for the sector in the budget, particularly those relating to allowing foreign carriers pick up stake in Indian airlines, they said.

Aviation consultancy firm Centre for Asia Pacific Aviation (CAPA), which estimates a combined loss of USD 2.5 billion for the Indian carriers, said the robust growth in air traffic has failed to translate into profits due to the impact of high jet fuel costs and the inability to raise fares in a competitive market.

Rather than focusing on micro issues, the government should create an environment which recognises and supports industry viability and competitiveness, CAPA said, adding that the sector must be in a position to operate safely and efficiently, delivering sustained and reasonable profits and covering its cost of capital.

The airline industry also wants easier access to global routes by Indian carriers for increasing their yields and enhancing air traffic management infrastructure.

They have also suggested lowering of sales tax on jet fuel, upgrading airport infrastructure and the development of an infrastructure fund to construct airports in Tier II/III cities.

The government might consider a package for Air India by including a provision in the general budget to help it clear its slate of high debt and losses, official sources said.

A Group of Ministers, headed by Finance Minister Pranab Mukherjee, has already cleared a financial restructuring plan for the cash-starved national carrier, allowing it to raise Rs 7,400 crore by issuing government-guaranteed bonds or other means.

The bond is likely to carry a coupon rate of 8.5-9 per cent and financial institutions, who have lent money to Air India, may subscribe to these bonds, the sources said.

The entire package was suggested by the GoM as part of the airline's financial restructuring and turnaround plan.

The government has already invested Rs 1,200 crore this year, taking Air India's equity base to Rs 3,345 crore.

The infusion of funds would come in time for Air India to induct the much-delayed Boeing 787 Dreamliner aircraft, the first of which is likely to join the fleet in May.