State oil companies have refused to extend credit for aviation turbine fuel (ATF) supplies to Air India forcing it to cancel 10 flights on Friday. The decision to stop extending credit and sell strictly on a ‘cash-and-carry basis’ was taken by Bharat Petroleum, Hindustan Petroleum and Indian Oil, as AI’s pending dues crossed the Rs 2,200-crore mark.
The debt-ridden national carrier purchases ATF worth Rs 18.5-19 crore daily but is able to pay about Rs 16 crore to the oil companies because of its delicate financial situation. This meant oil companies were suffering a daily loss of Rs 2.5-3 crore on sale of ATF to Air India.
“From Thursday midnight, we decided to sell fuel strictly on a cash-and-carry basis,” an official from an oil company said. As a consequence, at least 10 AI flights, all from South India, were cancelled. But oil companies' stern move seems to have worked and by evening the payment crisis was resolved.
“AI has agreed to pay Rs 18 crore daily towards ATF purchase,” the official added. An AI spokesperson said the issue was resolved and oil companies had resumed fuel supplies without giving specific details.
“For the first time, flights have been cancelled because of inability to pay for fuel. It shows the gravity of financial problem Air India is facing. Oil companies’ decision to resume supplies only means deferment of the problem. The companies can’t supplying fuel without getting cash. Air India needs to take requisite measures to bridge the gap between its income and expenditure,” said AI’s former public relations executive director Jitender Bhargava.
“The government needs to take an urgent decision on Air India’s financial restructuring. The payment crisis is largely the result of the debt burden faced by the airline. It is not related to the airline’s decision to sell tickets at lower than market prices in recent months,” an another aviation analyst remarked.
AI’s outstanding on fuel purchase is Rs 2,264 crore, the official added. Apart from this, AI defaulted on payments to airport operators, catering companies and other service providers. “If oil companies execute the threat and do not supply fuel, AI will not even earn whatever it does now,” an airline official said.
“Air India has been promising they will clear the pending dues. But that issue will be taken up separately,” the official said. Two months ago, oil companies sought a road map from the national carrier how it will clear the Rs 2,000 crore-plus dues.