Airlines may import fuel jointly

Aviation companies plan to join hands for importing aviation turbine fuel in a bid to bring down their fuel bills.

A person close to the development said SpiceJet, Air India and Kingfisher Airlines, which had already expressed interests in importing ATF directly, were considering the consortium route to further bring down their costs.

While these airlines plan to import the fuel individually, they may partner in bringing it to India in tankers.

"It'll be more economical to transport the fuel in bulk, rather than in smaller quantities ordered by each airline.

"Oil marketing companies have suggested the airlines to jointly charter ships to save on importing.

"However, we are yet to discuss this and select a service provider who will assist us in ATF import, storage, transport and supply," said an AI executive.

The ailing state-run carrier hopes to save about Rs 300 crore (Rs 3 billion) from direct import of ATF.

The airlines have approached Reliance Industries Ltd to act as a facilitator, after OMCs IndianOil, Bharat Petroleum and Hindustan Petroleum declined to import ATF for them.

The oil companies say with the logistics involved and subsequent lack of infrastructure, it'll be a loss-making proposition for them.

"We have been approached, but we categorically told them we neither had the facilities to support it, nor did we wish to invest in putting the same.

"ATF needs multiple handling and there is no dedicated facility for importing and handling it.

"There is a huge amount of risk involved here," said an aviation general manager at an OMC.

An RIL executive said the company's current infrastructure was sufficient to facilitate storage, transport and supply of ATF.

"We are in a position to handle this. At most ports, we have transport facilities available," he said. RIL is present at 25 airports.

"It, however, said ATF exports from its refinery in Gujarat would not be brought in as imports.

"OMCs do produce ATF at their refineries, but charge a premium to make up for losses caused due to sale of kerosene, petrol and diesel at

subsidised rates.

ATF is a quality-sensitive product.

"Unlike other products, it has to be certified by the directorate general of civil aviation, in addition to the OMC concerned.

"Also, the quality is very stringent.

"Almost 23 parameters are to be met and 23 tests are to be done.

If one consignment gets rejected on quality ground, it'll be a big loss," said the general manager.

OMCs say even if a company is able to bring the cargo to any of the coastal terminals, moving it from there to the airport would be a logistics nightmare.

They say if airline companies sign long-term contracts with them, they are ready to invest in setting up of infrastructure.

They think state governments will look at bringing in the sales tax in some other form, as they've not been assured on how they'll be compensated.

Also, if importing, airline companies will need to place an order for a few hundred thousand kilo litres of jet fuel at once, which should be a period of for three or six months.

Payment for this, however, will have to made upfront.

So far, airline companies were able to get jet fuel on credit from OMCs.

Availability of tank farms is also an impediment.

A mid-sized tank farm, with a capacity of 75,000 kilo litres, will cost around $20 million and take 18 months to build.

Besides, one would need ATF tankers in place.

OMCs say airline companies are interested in bringing in one or two parcels in a token manner, so that the state government reduces the sales tax rates.

"The intention is to create some amount of pressure on the state government, so they may be looking at importing token parcels.

"But the advantage will come only if you get big parcels of 8,000-10,000 tonners," said another general manager at an OMC.

State governments levy sales tax of four to 28 per cent on ATF, making its prices high and unaffordable for airlines.

Oil company executives say airline companies are looking for an end-to-end solution.

Also, with nearly 75 per cent of ATF being sold at five airports -- Mumbai, Delhi, Hyderabad, Bengaluru and Chennai -- providing point-to-point solution at these destinations is not possible for them, they said.