Google News

Friday, March 16, 2012

Budget boost for Aviation Sector !?!?

The Finance Minister today announced measure that could help the aviation sector in India. I am no expert in economics but indicators show that this budget might provide much needed temporary relief. The Union Budget 2012 will allow ailing the Airlines to get working capital upto $1 billion per year through External Commercial Borrowing (ECB). This would especially be useful for Air India and Jet Airways who have about 55%-60% of ticket revenue in dollars. The trick however is to not get carried away as loans would accrue interest in dollars. The banks have been reluctant to loan to aviation sector therefor the loan conditions could cause more CAT for the sector.
One very good move in the budget is the allowance of import of Aviation Turbine Fuel (ATF) by Airlines directly. This will allow airlines to negotiate better fuel rates and reduce tax burdens. Since jet fuel is one of the greatest contributors towards aviation costs, this will significantly increase airline range.

There is no immediate decision on Foreign Direct Investment (FDI) or Foreign Airline Stakes (upto 49%) but is under consideration.

So in a nut shell the ATF direct ourchase will boost the sector but ECB will have little or temporary impact. This is a welcome start and maybe smarter economic minds can share further inputs on the same.

Finally the elephant in the room: Kingfisher Airlines may see a little positive impact from this budget. The investment of USD 1 billion maybe too little or too late for KFA to turn around. The budget could offer just enough working room for Dr Mallaya to spin his magic and turn things around for Kingfisher Airlines. Wishing him all the best with that.

Stock update: KFA stock has risen slightly pre and post budget

Good news for foreign travelers is that custom limit has increased from 25,000 to 35,000 which now translates to approximately USD700 (from USD500)