New Delhi: State-owned oil marketing companies raised aviation turbine fuel (ATF) prices by Rs610-670 per kilolitre on Thursday. According to industry observers, this hike, of around 1.8 per cent, is likely to raise the fuel bill of carriers by around Rs15-Rs20 per seat. They point out that fuel costs account for almost 40 per cent of all operational expenses of airlines.
The rise in the cost of fuel comes close on the heels of a likely withdrawal of exemption of withholding tax on lease rentals, which is expected to raise cost per seat by over Rs70.
The finance minister did not indicate if the exemption given on withholding tax on lease rentals of aircraft would be extended beyond the March 31, 2007 deadline in his budget speech.
If withdrawn, there may not be any immediate impact on fleet expansion programmes this year, as industry observers say that all new deliveries in the current year have already been accounted for. The pinch, observers say, would likely be felt from 2008 onwards.
Globally, aircraft are financed through lease transactions and any removal of exemption will boost the cost of these leases by 10 to 40 per cent, depending on the tax treaty in place with the country where the leases originate.
The Indian aviation industry is likely to add approximately 400 new aircraft to its collective fleet over the next five years.