Encashing Kingfisher bank guarantee last resort, says HPCL

Rs 505.53 crore in jet fuel dues to the firm put airline on tenterhooks

The Vijay Mallya-run Kingfisher Airlines owes state-run Hindustan Petroleum Corp Ltd (HPCL) Rs 505.53 crore in jet fuel dues against a bank guarantee of Rs 434 crore, according to the oil marketing company’s annual report.

“If Kingfisher fails to pay our dues, we have the option of encashing the bank guarantee. But, as of now, we are hopeful the entire dues will be realised,” a senior HPCL official told Business Standard, requesting anonymity.

HPCL is Kingfisher's biggest aviation fuel supplier. It had snapped supplies to the airline in March due to non-payment, a move that grounded its flights temporarily.

While IndianOil Corp Ltd's supplies to Kingfisher are negligible, Bharat Petroleum Corp Ltd (BPCL) sells fuel to the airline on a cash-and-carry basis at some airports.

A senior BPCL official, who also did not want to be named, said that in case an airline failed to pay the dues, oil marketing companies could take action for recovery of dues in accordance with the mutually-agreed commercial terms. Interest on the amount is recovered in overdue payments.

BPCL said its exposure to Kingfisher Airlines is nil.

Rising fuel and capital costs, in addition to competition-induced price wars, have resulted in huge losses and mounting debts to the country’s airlines.

Analysts say the government's nod to allow foreign airlines to buy up to 49 per cent in local carriers will help India’s aviation sector, in dire need of capital.

According to an Edelweiss Securities flash note, while Kingfisher Airlines is on the verge of bankruptcy, as on March, Jet Airlines had accumulated a Rs 13,300-crore debt on its books. Jet's reserves and surplus have eroded to Rs 44.6 crore in 2011-12 from Rs 1,640 crore in 2009-10.

Also, national carrier Air India, as on July, owed Rs 2,000 crore in jet fuel dues to the state-run oil marketing companies, without any bank guarantees.

While Air India owes Rs 300 crore each to BPCL and HPCL, the airline has to clear a Rs 1,250-crore payment to IndianOil, according to officials from these companies.

“Air India is unable to pay even after a 90-day credit period. They owe us about Rs 300 crore without interest,” another BPCL official had told Business Standard.

Of its dues of Rs 1,900 crore to IndianOil, Air India has paid about Rs 650 crore so far. "Air India had settled part of the dues.

The company will pay us in tranches from the bailout package the government has decided for the airline," a senior IndianOil official said.

In April, the government announced it would infuse additional funds into the airline worth Rs 30,000 crore in nine years. An immediate infusion of Rs 6,750 crore has already been done.

Till early this year, Air India owed over Rs 4,170 crore to public sector oil companies in jet fuel bills. This February, the three oil marketing companies had snapped supplies of fuel to Air India because it failed to honour payments even after the 90-day credit period.

The matter, however, was resolved after a high-level intervention by officials from the ministries of civil aviation and oil; the airline then agreed to pay part of the money within 48 hours.