Kingfisher in talks with oil marketing companies for phased repayments

Mumbai: Kingfisher Airlines is said to be in discussions with the public sector oil marketing companies over the latter's demand to repay dues. Kingfisher is seeking to go about the repayment in a 'phased' manner.

With cumulative arrears running up to a whopping Rs900 crore, state-run oil companies have now asked the petroleum ministry to recover their dues from the country's airlines, including Jet Airways, Kingfisher and Air India. According to reports, the petroleum ministry may even contemplate punitive action, such as a ban on fuel sales to defaulting airlines, should they fail to pay up. 

India's Oil secretary RS Pandey had said on Thursday that some domestic airlines, including Kingfisher, had defaulted on jet fuel payments. (See: Petroleum ministry asks airlines to clear Rs900-cr in ATF dues)

However, civil aviation minister Praful Patel raised a strong voice for rationalisation of air turbine fuel (ATF) prices in order to save the aviation sector, pointed out that ATF prices were 70 per cent higher in the country than anywhere else in the world. In August, a kilo-litre of ATF cost Rs73,600 in Mumbai, against Rs46,500 in Singapore. 

Moreover, Patel said that the labelling of airlines as defaulters over the delay in payment of fuel bills to oil companies, there was a 60-day period for making payment. "So they cannot be branded as defaulters,'' Patel said. (See: Patel resolved Jet crisis – says airlines are not defaulters)

UB Group's chief financial officer Ravi Nedungadi said the airline was in discussions with the public sector oil companies to repay ''in a phased manner''. He said the airline would want to take a little more ''extended credit". The UB Group holds a controlling stake in Kingfisher Airlines. 

Nedungadi said that the airline was in discussions about the timeline for repayment, and claimed that an understanding was developing on both sides. He added that funding from banks was an increasingly uphill battle for the entire airline industry, because of which every company is ''caught in a bind''. He said the banking sector is unable to lend even if they are willing, on account of reduced liquidity. He said the real solution would be to rationalise ATF prices, which accounts from anywhere between 30 to 45 per cent of operating costs. 

The UB Group CFO said the airline would see cost benefits from its code sharing agreement with Kingfisher within two months. According to Kingfisher chairman Vijay Mallya, both Kingfisher and Jet would save around Rs15 billion annually.

The two airlines are also evaluating plans to return 14 narrow-body aircraft they had leased in a bid to rationalise their fleet, even though the decision was yet to be finalised.