The carriers are seeking a move from import parity pricing to “means of Platt Arab Gulf or MOPAG”, which essentially means the same prices as payable in Dubai for ATF. This would result in 15-20% savings on this count for the airlines while making the system more transparent and fair since it is index based. “This will eliminate the present discrimination and is an already available transparent mechanism,” says an airline CEO.

An Air India top management official added that it would also allow airlines to hedge their fuel costs as it would be market linked and not the published price at the airport. This would help them manage their cash outflows better. Ministry sources confirmed that this is under consideration. While the airlines would be happiest with an “export parity” pricing, this may not be fair to oil companies so some kind of midway needs to be arrived at.

Industry sources, however, argue that just the reduction in ATF prices will not be the panacea for the whole industry. “SpiceJet and others have been running on reserves for a while now and while such a measure may bring some temporary relief, the airlines need to recapitalise and strengthen their balance sheets regardless,” says a MOCA official. He says that while these smaller airlines managed to ride out the first crisis in 2020, the macro environment in many ways has worsened since and tiding over could be tougher now. The question he asks is will the Ukraine war and its unintended consequences be the final blow on the camel’s back?

There’s no denying the fact that many of the smaller airlines have been saddled with debts and vendor dues for the last two years. There is no way out but some serious cash infusion. This is the challenge facing Spicejet and other players in the industry. Where does one go from here is the several million dollar question.

(Pan, Pan, Pan is a call issued by the commander that there’s trouble but not a panicky situation like Mayday, Mayday. It’s a stage before 'Mayday' is called).

airlines' debts

Pan, Pan, Pan! SpiceJet, Air Asia, Vistara, IndiGo, Air India—no end to airlines’ woes