The Hindu Business Line : Will Jaswant pilot an airline-friendly Budget?

Whether Mr Jaswant Singh will be in a position to offer relief to the airline industry, which translates into a dip in domestic air fares, will become clear only on Friday.

LIKE the common man, the civil aviation industry is eagerly awaiting the presentation of the Budget to find out if some much-needed relief is provided to the sector.

The three major players — Indian Airlines (IA), Jet Airways (JA) and Air Sahara (AS) — are unanimous that among other issues the Budget must tackle lowering or doing away with the Central excise duties levied on aviation turbine fuel (ATF) and the possible abolition of the Inland Air Travel Tax (IATT).

The ever increasing cost of ATF, which accounts for about 30 per cent of the operating cost of domestic flights, has been due to a variety of factors including the successive jumps in the base price, hikes in the central excise duty from 10 per cent to 11 per cent and then to 16 per cent in April 2000, and high add-ons towards freight, storage, marketing and distribution by the public sector oil companies.

While the withdrawal of excise on ATF will result in a revenue loss of about Rs 200 crore annually for the Centre, it will go a long way in improving the financial viability of the domestic airlines.

In 2002-03, IA will pay about Rs 230 crore as sales tax on ATF and the domestic aviation sector as a whole close to Rs 430 crore.

Similarly, the soaring ATF prices have affected the fortunes of the domestic airlines.

The average domestic per kilolitre price of ATF has ballooned from Rs 14,520 in 1996-97 to Rs 22,500 in September 2000.

However, it must be pointed out that after the Government deregulated the sector, the average price fell to around Rs 18,000 but again spiralled to Rs 21,900 in October 2002 and peaked at Rs 22,380 this month.

Similarly, the high incidence of sales tax charged by the State governments on ATF is also hurting the domestic airline industry. Apart from Andhra Pradesh, which last year pegged the sales tax on ATF at four per cent, almost all the other States charge a very high sales tax on ATF, from 39 per cent in Kerala to 29 per cent in Madhya Pradesh to 28 per cent in Karnataka.

While what the Finance Minister, Mr Jaswant Singh, has in mind on this front is unknown as yet, it is interesting to note that the Kelkar Committee suggested the reduction of the basic Customs duty on ATF from 15 per cent in 2003-04 to 8 per cent by 2006-07.

Further, it suggested reduction in basic Customs duty on navigational, communication, air traffic control and landing equipment and spares for maintenance of such equipment by AAI from 20 per cent during 2003-04 to 8 per cent during 2006-07. The industry also hopes to get some relief on the Inland Air Travel Tax (IATT) front. If abolished, it could make flying a bit cheaper.

The IATT, when first introduced in July 1989 was fixed at 10 per cent. However, due to the developing circumstances in 1990, it was hiked to 15 per cent.

Besides, there is also a hope that the duty on import of spare parts for aircraft will be reduced.

This has been a major burden for the state owned airlines as its fleet is old necessitating frequent change of parts.

In 2000-01, IA spent Rs 684.6 crore towards material consumed and outside repairs, which dropped marginally to Rs 607.9 crore the following year.

Similarly, Jet Airways is hoping that the withholding tax on loans for financing aircraft buys will be done away with. Apart from the spiralling costs of ATF this is also one of the reasons for the high operating costs of airline.

Market-watchers feel that if some of the major pleas of the industry are accepted, it would make a strong case for the passenger to seek a reduction in fares.

As things stand a passenger from Delhi will find it cheaper to fly to a South- East Asian destination, say, Bangkok, Singapore or Kuala Lumpur than to many Indian cities.

Whether Mr Jaswant Singh will be in a position to offer relief to the airline industry which translates into a dip in domestic air fares will become clear only on Friday.

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