Aviation shares like Kingfisher Airlines, Jet Airways and Spicejet rallied on Tuesday after a Group of Minister (GoM) recommended allowing domestic carriers to directly import jet fuel.
The GoM suggestion will need an approval from the Union Cabinet, which is likely to take up the proposal soon.
Importing the jet fuel would allow Indian airlines to save on hefty sales tax imposed by local governments.
"Companies will be allowed to import ATF directly for their use. This also has to go to the Cabinet," Union Civil Aviation Minister Ajit Singh said after the GoM meeting today.
Fuel costs are the biggest cost overhead for an Indian airline company. Domestic carriers pay sales tax in the range of 4-28% on ATF, which accounts for 40-50% of the operational cost.
Separately, the GoM approved a financial restructuring package for debt-ridden national carrier Air India.
The GoM is headed by Finance Minister Pranab Mukherjee.
Shares of Jet Airways climbed 14% at Rs338, while Kingfisher Airlines shares surged 16% at Rs29.
Shares of Spicejet were up 11% at Rs27.
On the issue of foreign direct investment (FDI), Ajit Singh said today that a Cabinet Note has been prepared and it will be sent to the Commerce Ministry after which the Cabinet will take a call on it.
The Cabinet Note recommends foreign airlines to allow up to 49% in Indian carriers, he added.
"A note has already been prepared on FDI. It will go to the cabinet soon," Singh told reporters.
The Indian government currently bars foreign airlines from buying into Indian carriers, although foreign institutional investors (FIIs) are allowed to hold a cumulative 49%.
Indian airlines have been severely hit by steep losses over the past several months due to high fuel costs, rising interest rates and stiff competition.