After having not paid their fuel bills for nearly a year, Air India is now unable to refuel aircraft at six Indian airports.
State-owned oil firms have stopped India’s national flag carrier from being able to refuel their planes at six regional airports. This latest action happened on Thursday following the non-payment of money owed, according to News 18.
India’s state-run oil coalition (OMC) headed by Indian Oil has stopped the supply of jet fuel for Air India aircraft at Cochin, Ranchi, Mohali, Patna, Vizag and Pune airports.
India has run up massive jet fuel debts
The reason the OMC decided to take this action is that Air India (also a state-owned company) has run up a massive bill for jet fuel. Airline officials say they hope to get the issue resolved soon.
Hindustan Petroleum Corp Ltd (HPCL) Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) stopped supplying jet fuel to Air India a 16:00 local time on Thursday.
“Air India has a 90-day credit period, which means they have to make payment for fuel they buy today by November 21st. Air India had not been making payments and the credit period was now over 200 days,” a senior official at one of the three state-owned oil firms said, according to Indian website LiveMint.com.
The total unpaid jet fuel bills to the oil companies now stand at close to $550 million according to aviation website FlyerTalk.
“Fuel supply by OMC to Air India has been stopped on Thursday evening due to non-payment of dues,” an Indian Oil spokesperson told the Indo-Asian News Service (IANS). However, we are in touch with the airline and are hopeful of a resolution.”
So far no Air India flights have been canceled due to the fuel stoppage
“We are in discussion with the OMC to resolve the issue,” an Air India spokesperson told the news service. “Additionally, we have also paid Rs 60 crore for past supplies and made today’s payments as well. Flights have been loaded with return sector fuel to ensure that operation will not get impacted. In the absence of equity support, Air India cannot handle the huge debt service liabilities. Our financial performance, however, this fiscal is very good and we are moving towards a healthy operating profit. The airline despite its legacy issues is performing very well.”
Public ownership is the problem
When it comes to running an airline, governments around the world continue to fail in their attempt to compete with the private sector.
Privately owned, profit-driven businesses run on the bottom line, whereas publicly run businesses always tend to be overstaffed and inefficient.
If it was not for the fact that the Indian state finances Air India, the airline would have already folded. This is evident in the fact that once an investor had a look at the books, they all walked away.
Air India, like many state-owned enterprises, is overstaffed and top-heavy when it comes to their highest-paid employees. Unlike most privately run airlines, Air India refuses to outsource jobs, keeping a wide range of functions that could be performed less expensively in-house.
Now, once more, Air India will look to the government to pay its outstanding fuel bill and the cycle will continue until the next problem arises. Meanwhile, the government talks a good game, telling Air India that they must cut costs and start to turn a profit if they expect help from the state.