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• India's cash-starved airlines will be allowed to import jet fuel directly under a plan approved by a government panel on Tuesday, a break that could help them cut fuel costs by up to 20 percent but also require new spending.Carriers led by Kingfisher Airlines (KING.NS) have long demanded the right to import fuel, which accounts for about half of their operating costs, and airline shares soared on the news.The airlines, almost all of which are losing money, are now required to buy fuel from oil marketing companies including government-controlled Indian Oil Corp (IOC.NS), Hindustan Petroleum Corp (HPCL.NS) and Bharat Petroleum Corp (BPCL.NS), which are mandated to levy various federal and state taxes.
• Largely because of these taxes, jet fuel prices in India are among the highest in the world and the move to allow direct imports could reduce costs by 15 to 20 percent, analysts said.Kingfisher shares surged by their maximum daily limit of 20 percent on the news, while SpiceJet (SPJT.BO) and Jet Airways (JET.NS) rose 19.5 percent and 18.2 percent respectively.Importing the fuel will present its own challenges, however."Airlines have to look at where they can store this fuel," said Rajan Mehra, executive director at Asia Pacific Academy for Aviation and Hospitality. "I think actual net savings will be 10 percent because they will be paying for storage as well."
• Sharan Lillaney, aviation sector analyst at Angel Broking, said the move would have little impact in the short term."Also, when they don't have the money to pay local oil companies how will they buy in the international market," he said. "It will take very, very long time to materialise."The decision, announced by Aviation Minister Ajit Singh, still needs cabinet approval.Jet Airways, India's biggest airline by market share, said it may seek help from oil companies to import fuel."We do not have the infrastructure. If the oil companies support this initiative it will be a good thing for airlines to bring down the cost," M. Shivkumar, the airline's senior vice president of finance told CNBC-TV18.Executives from Kingfisher and SpiceJet were not available.Most airlines in India are losing money as a result of high fuel costs, cutthroat competition and a slowdown in the economy.

LIFE SUPPORT

• The carriers are likely to lose up to $3 billion in the fiscal year ending March, the Centre for Asia Pacific Aviation has said. State-owned Air India, operating on taxpayer life support, is expected to account for more than half of that.The total debt of the industry is expected to rise to $20 billion this fiscal year, the Aviation Ministry has said.Shares of oil marketing companies closed 1 percent to 1.3 percent lower on concerns that sales may fall in their high-margin jet fuel business.The panel also approved a debt restructuring for Air India, Singh said without elaborating.Air India, which is trying to restructure a $4 billion debt, may issue 74 billion rupees of bonds as part of the restructuring, he said without providing details.This will also need cabinet approval as well as buy-in from lenders, which are reluctant to agree to any plan that involves taking equity in Air India or requires large writedowns.
• Singh also said the panel would soon pass on to the cabinet its recommendation that foreign airlines be allowed to buy up to 49 percent of Indian airlines, a move the government hopes will help the carriers get access to funds.The government earlier backtracked on a similar plan that would have opened the supermarket sector to foreign investment.Kingfisher shares closed 13.8 percent higher at 29.2 rupees, while Jet Airways gained 14.5 percent to 340.9 rupees and SpiceJet finished 11 percent up at 27.3 rupees. The overall market closed down 0.5 percent.

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