Have applied to DGFT to buy ATF directly: Vijay Mallya

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The aviation sector is facing tough times globally, thanks to high crude oil prices, Vijay Mallya, chairman, Kingfisher Airlines  told CNBC-TV18 while sharing views on the ailing sector.

Not only do the Indian airliners buy jet fuel at the highest rate available, but they also pay an ad valorem tax to the state governments. Mallya finds this terribly unfair and feels that states are making windfall gains at the cost of airlines. 

Mallya has been lobbying with the government for rationalising aviation turbine fuel (ATF) cost , feels that if airplanes weighing under 40 tonne enjoy a 4% sales tax on fuel, why can't bigger aircraft also be given that benefit.

In an attempt to reduce cost, KAF has applied to the directorate general of foreign trade (DGFT) to import aviation turbine fuel (ATF) directly.

"We would use the infrastructure of one of the oil marketing company (OMC) and pay them a service fee for handling the fuel being imported. That gives us a direct use status and saves sales tax," he explained.

Below is the edited transcript of Mallya's interview with CNBC-TV18. Also watch the accompanying video.

Q: The aviation sector is stressed out worldwide, what is your view on this?

A: The aviation sector is stressed out worldwide largely because of very high crude oil prices. But here in India we have the highest jet fuel prices in the world compounded with the fact that we pay an extraordinarily high advoleram sales tax to the state governments. This is terribly unfair because the states are making windfall gains at the cost of airlines.

But nevertheless the Federation of Indian Airlines has met the Prime Minister and briefed him about critical issues facing the industry. I am sure that government will look into it because connectivity in this country and the growth of aviation will help the economy to grow.

Q: What can the government do for you? FDI is one of the options that have been looked at. Is there something else that you have asked the Prime Minister (PM) for?

A: Rationalisation of taxes is the most obvious.

Q: That is also a State subject, isn't it?

A: Yes, but aircraft under 40 tonne of max takeoff weight and enjoy declared goods status for fuel. So, government could actually make ATF for all aircrafts declared goods and lower the tax significantly for the benefit of the critical aviation sector.

As far as FDI is concerned, 49% is already permitted. So it isn't as if this is something new. It's just that foreign airlines are not permitted to invest within that 49%. I am reading once again in the media that proposals are being considered to permit for airlines to invest within that 49%.

It's a capital intensive business. It needs capital and a strategic investor that's another airline will understand the needs of an airline better than general investor would.

Q: The last time you had a press conference you had said that you were in talks with an Indian person who wanted to invest in the airline. Are those talks still very much on?

A: Yes absolutely.

Q: Have they progressed? Can you fill us in what has happened? How soon can we see a deal?

A: I'll tell you at the appropriate time.

Q: But are talks on with the same partner right now?

A: Yes, prospective partner.

Q: Prospective partner or prospective partners?

A: It is plural.

Q: At that press conference you also said you were wanting to buy the ATF on your own and you have the logistics worked out. How are those plans working out?

A: We have applied to the DGFT to import aviation turbine fuel directly. We will use the infrastructure of one of the oil marketing companies and pay them a service fee for handling the fuel that we import. That gives us a direct use status and saves sales tax and that's the whole idea to reduce cost.

Q: The oil marketing company you mainly deal with now is HPCL . So could be assumed that it will be the same oil marketing company you are looking to tie up with for this arrangement?

A: No it can be any one of them.