01 March 2007


Date: 01. Mar. 2007
As the civil aviation sector expands at a rapid pace, the Union budget for 2007-08 has proposed a hefty increase in allocation for state-owned Indian and Air India and public sector undertakings such as the Airports Authority of India, Pawan Hans Helicopters and Air India Charters Limited.
In his budget speech, Finance Minister P. Chidambaram also proposed reduction in tax on aviation turbine fuel for all types of small aircraft and imposed a three per cent duty on private import of planes.
The total allocation for all public sector enterprises under the Civil Aviation Ministry is proposed to be increased from Rs. 2,256.36 crore to Rs. 12,192.09 crore with the lion's share earmarked for Indian, Air India and its low-cost subsidiary Air India Charters limited. The increased allocation is meant for the ongoing fleet acquisition plans of the two state-owned carriers.
While the allocation for Air India rose from the 2006-07 revised estimates of Rs. 490.84 crore to Rs. 6,337.01 crore, the allocation for Indian went up from Rs. 350 crore to Rs. 2,507.70 crore and that of Air India Charters took a jump of more than 10 times from Rs. 70.70 crore to 1,124.47 crore. Air India Charters operates the low-fare carrier Air India Express which operates flights to the Gulf region.
The outlay for Pawan Hans Helicopters Limited was proposed to be raised from Rs. 180 crore to Rs. 246.5 crore, while that of AAI from Rs. 1,149.82 crore to Rs. 1,961.41 crore. The regulatory body of the Directorate General of Civil Aviation (DGCA) also saw a massive hike in its outlay from Rs. 39.6 crore to Rs. 108.86 crore, while that of the Bureau of Civil Aviation Security was more than doubled from Rs. 7.08 crore to Rs. 18.43 crore.
Mr. Chidambaram also proposed to amend the Central Sales Tax Act to treat aviation turbine fuel (ATF) as a `declared good' for all small aircraft, with a maximum take-off mass of less than 40,000 kg, operated by scheduled carriers. This would imply a flat four per cent CST on ATF for these aircraft. Earlier, this facility was available only for turbo-prop aircraft. Now all small aircraft, including regional jets operated by scheduled airlines, would be covered by the provision.
Source: http://www.hindu.com


Date: 01. Mar. 2007
The dispute arising from Jet Airways's bid to acquire Sahara Airways is still making rounds of the judicial system. The Supreme Court had transferred the dispute to Bombay High Court. Later, a deal which was fixed at Rs. 2,300 crore, failed as Jet Airways Chief Naresh Goel had failed to get all the security clearances before the expiry date as specified by the Share Purchase Agreement (SPA). Following this, the Bombay High Court asked both the parties to find a solution for the dispute before the Arbitration Tribunal (AT).
However, as the Jet Airways sought to resolve the dispute over encashment of Rs 500 crore guarantee by Subrato Roy, Sahara Chief, for a Share-Purchase Agreement (SPA) that went sour, the matter was before the High Court, yet again. The Court reiterated that the dispute be taken up with the Arbitration Tribunal.
The Supreme Court in June 2006 had directed all disputes arising out of the collapsed deal for acquisition of Sahara Airlines by Jet Airways for Rs 2,300 crore would be heard by the Bombay High Court but had not vacated the stay on the escrow account and advance paid by Jet for the purpose. The order which was passed by the bench headed by Chief Justice YK Sabharwal, also asked the Bombay High Court to expeditiously decide the issue of jurisdiction. The injunction granted by the Lucknow Court will also be continued till further orders.
The apex court, with respect to the various clauses of the escrow, pledge and guarantee agreements, held that the ends of justice would be met at one court, namely the Bombay
High Court subject to the High Court having inherent jurisdiction to entertain the dispute. The Bench had further said that it will be open to respondent Sahara to urge before the Bombay High Court that it lacks inherent jurisdiction. It was found that the Bombay High Court has inherent jurisdiction then the petition filed by Jet Airways before the Lucknow court would be heard in Bombay.
In the Bombay High Court, Justice D K Deshmukh in September 2006 admitted the case allowing Jet Airways to withdraw Rs 1500 crore from the escrow account subject to condition that the interest on that amount would go to Sahara Airways. The court had asked Jet Airways to furnish a bank guarantee of like amount in the court, in case court orders went against them. The court had also observed that the amount of interest would go to Sahara Airways. The court has also appointed former Chief Justice of India S P Bharucha as arbitrator and, then, adjourned the hearing.
Even as the matter was before the Arbitration Tribunal, Jet moved the High Court to get Roy's guarantee enforced, which was today disallowed by Justice D K Deshmukh. He held that the matter of enforcement of the guarantee shall also be heard by the AT. Roy's counsel, Fali Nariman had contended that the guarantee was incorporated as part of the SPA and should be dealt with before the Tribunal. However, Jet's lawyers Harish Salve and Janak Dwarkadas opposed the submission saying the guarantee was distinct from the SPA. They had contended that the guarantee was a stand alone with a liability to be paid on demand.
Source: http://www.cybernoon.com


Date: 01. Mar. 2007
Travelling by air could become dearer from April. This is due to the withdrawal of exemption on withholding tax of 12-15 per cent on lease rentals. In the last few budgets, airlines augmenting their fleets were given exemptions from this tax, which comes to an end on March 31, 2007. "This will push up lease rentals by 10-12 per cent," said Mohan Kumar, consultant for low-fare airline Air Deccan.
The withholding tax will hurt airlines that plan to lease more planes in the next couple of years. Indigo, for instance, plans to induct eight planes this year and eight in 2009. "The withholding tax will hurt us as we have signed leases for only some of these planes," said Bruce Ashby, CEO of Indigo.
The tax will severely hurt the state-owned carriers Air-India and Indian, which are adding many planes. "This will significantly increase the fleet acquisition costs of Indian carriers, particularly in a market where demand for aircraft is greater than the supply. We hope that the provision can be included in the Finance bill," said V Thulasidas, CMD Air-India and chairman of the Federation of Indian Airlines.
Airlines, which had sought rationalisation of taxes on aviation turbine fuel, are sore about the government not doing enough about the sector. "Aviation is not in the government's radar. They probably still think it is peripheral and marginal, and not integral to the economy," said Air Deccan CEO GR Gopinath. "If you want to create jobs, you need to encourage the core sectors."
Some airlines like Paramount and Air Sahara, which flies Embaer jets and CRJ jets respectively, will benefit from the extension of 4 per cent aviation turbine fuel for smaller jets weighing less 40 tonnes. This was earlier available only for turbo-props aircraft (ATRs) flown by Air Deccan, Jet and Kingfisher. Sahara, which plans to buy 25 CRJ jets, hopes to save Rs 25-30 crore annually. Alliance Air, which is buying CRJ Bombardier jets, will also benefit from this.
The helicopter companies like Global Vectra and Deccan Aviation, which offer charter services, will be hurt by the 7.12 per cent effective customs duty on the import of helicopters. This will force them to increase charter rates to companies like ONGC who use their services. Even as the BSE Sensex recovered 0.82 per cent or 107 points from the 4 per cent fall on Wednesday, airline stocks continued to fall. Deccan Aviation was down 7.5 per cent while SpiceJet fell 3.75 per cent; Jet Airways, which fell 4 per cent on Wednesday, defied the trend, moved with Sensex.
Source: http://www.hindustantimes.com