Aviation stocks rally after direct jet fuel import allowed

Pakistan Telegraph (IANS) Tuesday 7th February, 2012

Scrips of three listed domestic carriers -- Jet Airways, Kingfisher Airlines and SpiceJet -- rallied after the government Tuesday allowed airlines to import jet fuel directly.

The decision on direct jet fuel imports was taken by an empowered group of ministers (EGoM) headed by Finance Minister Pranab Mukherjee.

Analysts said the move, announced by Civil Aviation Minister Ajit Singh, would help airlines to cut 10-15 percent of their operating cost.

The move will enable airlines to directly import jet fuel as an end user, thereby saving sales tax, which ranges between 20-35 percent and is levied by state governments.

The Indian aviation sector been reeling under rising aviation turbine fuel (ATF) prices caused by high sales tax and other levies. Domestic airlines are estimated to have lost around Rs.3,000 crore in the first six months of this fiscal.

"This is very positive news for the industry. The airlines can be able to save up to 10-15 percent of their operating cost as jet fuel accounts for nearly 50 percent of the cost," Sharan Lillaney, aviation analyst, Angel Broking told IANS.

"The decision will help the airlines to break-even, pay back the oil marketing companies."

The scrip of Vijay Mallya-led Kingfisher Airlines hit an intra-day high of Rs.30.90, up 20 percent from Monday's close of Rs.25.75 at the Bombay Stock Exchange. The stock was hovering around Rs.28.50 in afternoon trade.

The Jet Airways stock too gained 18.06 percent and touched a high of Rs.351.90 from the previous close of Rs.298.05. The stock was Rs.336.90 around 2.30 p.m.

Budget carrier SpiceJet also gained 19.51 percent at BSE and touched an intra-day high of Rs.29.40 from the previous close of Rs.24.60

Analysts, however, said more clarity was required as to how airlines would manage the logistics of storing and importing fuel.

"We have to see how the airlines will import the fuel, do they have the cash to do so, where will they store the fuel, will they use the oil marketing companies' infrastructure or not. So there needs to be clarity on these things first, besides this, the news is very positive," said Lillaney.

Airlines have not yet come out with any logistics plan for storing and importing the fuel. This was one of the arguments by the three oil marketing companies Hindustan Petroleum, Indian Oil and Bharat Petroleum, who were opposing the move.

ATF is currently sold at Rs.71,155.22 per kilolitre (kl) in Kolkata, at Rs.67,702.21 per kl in Chennai, at Rs.63,864.31 per kl in Mumbai and Rs.62,907.82 per kl in New Delhi.

The average fuel price in cities like Kuala Lumpur is around Rs.41,000 per kilo litre, followed by Singapore at Rs.42,000 and Dubai at Rs.43,000.