Air ministry mulls cheap loans, lower VAT for ailing Indian carriers

With the combined accumulated losses of India's domestic airlines piling up to Rs49,000 crore, the civil aviation ministry has reportedly started working on a ''financial bailout package'' for the sector, under which it's exploring possibilities of offering loans at lower rates for working capital through the state-owned banks.

The Financial Express quoted an aviation ministry official as saying, ''There are many airlines like SpiceJet and Jet Airways that are facing severe stress. While we want them to compete in a free market, we do not want more airlines to go the Kingfisher route. Most players operate under a thin margin of 5 per cent and there are many factors in the market that are not in their control.

''We have discussed the plan with the civil aviation minister. We are thinking of a package where loans could be offered to airlines at 7-8 per cent that will help them meet challenges like working capital. We could also allow more low-cost foreign borrowings. There will be other aspects also, and we have told the airlines to submit a memorandum in this regard,'' the official said.

The ministry expects to form a comprehensive plan over the next month and subsequently seek approval from the finance ministry.

Most airlines reported heavy losses in FY14. Jet Airways saw losses of Rs4,200 crore, SpiceJet Rs1,003 crore and national carrier Air India over Rs5,000 crore.

SpiceJet, which carries a debt burden of over Rs1,700 crore, is currently in a row with the Directorate General of Civil Aviation, which is conducting an audit after reports that the airline is not maintaining an adequate inventory of spare parts.

SpiceJet has also not cleared various dues like service tax and airport charges. In fact, DGCA is also conducting an overall financial audit of all the airlines for which it had told them to submit the data last month.

The aviation ministry has called a meeting on 21 August to develop a consensus on reducing VAT on jet fuel across the states to 4 per cent. Currently, VAT on jet fuel (a state subject) is around 28-30 per cent in most states.