To do this, the airline will seek permission from the ministry of commerce and industry next week. The decision was earlier endorsed by the airline’s board in March. The AI board had also approved hedging of jet fuel up to 20 percent of its international intake and earmarked a specific amount for this in its budget.
“We will go ahead and apply to Directorate General of Foreign Trade (DGFT) for permission to directly import aviation turbine fuel,” said a senior Air India official.
Aviation turbine fuel (ATF) now sold in India is nearly 50-60 percent costlier than the price in overseas markets like Bangkok, Singapore or Dubai as an additional 3-30 percent state sales tax are added to the original value of the fuel which is supplied by three-state owned oil marketing companies (OMCs). By directly importing fuel, the airline won’t have to spend on the state sales tax.
“The fuel import is a sensitive issue and requires due diligence. In theory, it will cut down on domestic fuel costs, but to make it effective we need to study on various issues concerning the handling, regulatory approvals and current position of the industry on the import of fuel.”
According to the official, even after the airline gets the clearance from DGFT to directly import jet fuel, it will still take some months before the airline can actually get its hands on the imported fuel.
“We as a public sector undertaking (PSU) have to go in though the government norms of tenders and for those tenders to be out we have certain procedures to follow. After the tenders there will be an examining committee which will look into it.”
The official said the whole procedure would require nearly five-six agreements before the final fuel import structure becomes clear.
In April, low cost carrier (LCC) SpiceJet and cash-strapped Kingfisher Airlines had got the license for import of jet fuel. The move follows a February decision by the Finance Minister Pranab Mukerjee-led empowered group of ministers (EGoM) to permit domestic airlines to import jet fuel directly from abroad.
Due to high fuel cost, the sector has suffered heavily with all three listed airlines — Jet Airways, Kingfisher and SpiceJet — reporting losses for the fourth quarter of 2011-12 and for the last fiscal.