Ia To Weigh Fare Hike, Small Craft Today

The Indian airlines sub committee is understood to be in favour of ATR 42 over Dash 8 for the carriers accquistion of six 50 seaters, following a previous board decision to go in for an alternative evaluation.

The proposal is be put forward before the Board today. The board is also expected to decide whether the planes should be leased or purchased.

Sources were also of the view that a fare hike of 10 per cent is also likely to go through. Sources said that the ministry and the minister who had been opposing this hike had a meeting over the last 2-3 days and were of the view that the 10 per cent which is accomodated in the Budget passed in April be cleared.

Sources said that the view had been taken that since the civil aviation ministry had been working for reductions on aviation turbine fuel prices, tax on leasing and other such concessions for the sector but had not been able to secure these for the carriers due to non cooperation by other ministries,it cannot be held responsible for the hike.

Further, sources were of the view that since 10 per cent (with effect from October 01) had been budgetted for, it will go through. "This is reduced since we were earlier looking at a 12-15 per cent hike", claimed an IA source. He argues that the carrier was after facing cost escalations especially due to the levy of special additional duty during the Budget looking an a higher fare hike. Sources claimed that the uncovered gap on account of escalations despite the hike will be around Rs 150 crore.

Ministry sources, however, told Business Standard that they were of the view that this hike would harm IA since its load factors were already low and there is a limit to how much the market can absorb. It was pointed out that Jet need not necessarily go in for an equivalent hike.

IA has not been very keen to accquire six 50 seater planes for feeder routes with the total estimated cost of the project at Rs 500 crore against the direct cost of buying the planes at Rs 300 crore.

Sources in IA said that the airline was hestitant since the ministry wants to provide only Rs 30 crore as margin and the carrier would have to add to its debt by organising financing for the rest of the amount.

Besides, it is argued that the total project cost - spares, supporting equipment, floating engines, manpower planning and training - will be closer to Rs 500 crore.

IA has been arguing that it cannot afford to go in for the 50 seater project until the government implements all the Kelkar committee recommendations. It is argued that induction of Rs 125 crore as equity is not enough and that the carrier cannot go in for its fleet expansion if the Kelkar recommendations are implemented in this piece meal manner. The additional debt burden of accquiring these aircraft will be very high and the debt equity ratio of the company is already very skewed. The costs of leasing the aircraft is also expected to be very high since the witholding tax alone was 48 per cent.