Oil Minister, Murli Deora recently revealed

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Allegations of cartelisation notwithstanding, aviation companies do need to come out of their ‘losses’ misery or else they will soon die a natural death. Given their miserable situation, creditors are getting jittery, including oil companies and airports that have started to pester them for clearing their outstanding dues at the earliest. On the one hand, Mumbai International Airport is demanding its due bill to be cleared at the earliest, and on the other, Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (HPCL) have even issued a deadline of 15 days for dues clearance.

Oil Minister, Murli Deora recently revealed that Jet had defaulted on fuel-bill payments of $53 million to IOC. And the situation is grim for the entire industry. Jet, Kingfisher and Nacil together owe nearly Rs.1,800 crore to oil companies (beyond their credit limits), out of which almost 60% needs to be paid to IOC, and the rest to HPCL and BPCL. IOC has further revealed that Jet Airways has exceeded its credit limit of Rs.600 crore by Rs.330 crore, while Kingfisher, whose credit limit is around Rs.60 crore has exceeded by around Rs.40 crore. Nacil has no credit limit, but the company owes a staggering Rs.606 crore to them.

Moreover, the real problem faced by the industry is that of fixed costs that includes salaries and other operating costs. Figures unveil that the number of employees in Jet went up from 11,088 as on March 31, 2007 to 13,163 through March 2008 because of which salaries, increments and benefits for the same period also swelled up by 28.5% from Rs.938.1 crore to Rs.1,205.2 crore. Jet alone is anticipating a quarterly loss of over $103 million and this is when overall revenues are estimated to shoot up by nearly over 50% as against the same quarter of the previous year (due to growth in its international services).

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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