Pay cash or no fuel: Oil cos to Air India

State-owned oil companies have threatened to stop jet fuel supplies to Air India after the cash-strapped national carrier repeatedly defaulted on payment of fuel bills.

Air India was put on cash-and-carry from December, but the airline has not been able to pay for even its daily fuel purchases.

Oil companies last week sent a notice for stopping aviation turbine fuel supplies to Air India at some airports like Calicut and Jaipur, officials said in New Delhi.

Air India owes Indian Oil Corporation about Rs 1,900 crore (Rs 19 billion).

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IOC meets 63 per cent of Air India's jet fuel needs.

The national carrier has run up an outstanding bill of over Rs 300 crore (Rs 3 billion) with Bharat Petroleum Corporation Ltd, while its dues to Hindustan Petroleum Corporation Ltd are relatively small.

Officials said Air India buys jet fuel worth Rs 18.5 crore (Rs 185 million) per day from the three state oil firms, but it pays only Rs 13.5 crore (Rs 135 million).

This led the oil firms to threaten to stop supplies of ATF beyond what Air India pays for.

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"Oil companies already incur huge losses on selling diesel, domestic LPG and kerosene way below their production cost and to expect them to sell ATF at subsidised rates is not acceptable," an official said.

At a meeting called by Cabinet secretary K M Chandrasekhar in March to resolve the payment impasse, Air India sought discounts similar to the ones given to private airlines.

Oil companies give a Rs 1,600-1,800 per kilolitre discount to private airlines on promise of assured payment.

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After adding finance charges for a 90-day credit period, the discount comes to Rs 3,600 per kl.

"Even if this discount is stretched to Rs 5,000 per kl, the Rs 18.5 crore (Rs 185 million) per day fuel bill will not become Rs 13.5 crore (Rs 135 million).

After including some more concessions, the fuel bill at best will come down to Rs 17 crore (Rs 170 million) a day, a far cry from the Rs 13.5 crore (Rs 135 million) paying capacity of Air India," he said.

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Officials said Air India was discussing only the payments for future ATF purchases and there was no word on how the state carrier will clear the past outstanding.

"Air India talks of getting the same discounts as private airlines, but does it know that ATF purchases by airlines such as Jet Airways and Kingfisher Airlines are covered by a bank guarantee in case of default?", an official asked.

Both Jet Airways and Kingfisher have brought down their outstanding to manageable levels and have provided bank guarantees to cover against any default.

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