AI`s cost cutting steps should match govt assistance: GoM

Last Updated: Wednesday, October 21, 2009 - 22:07

New Delhi: A Group of Ministers on Wednesday night made
it clear to ailing Air India that any assistance by the
government should be matched by the airline through cost-
cutting and revenue enhancement measures.

No decision was taken at the first meeting of the GoM
headed by Finance Minister Pranab Mukherjee, Civil Aviation
Minister Praful Patel told reporters here, adding, the group
would meet again "in a week`s time" to discuss in-depth the
financial problems faced by the national carrier as well as
the Indian aviation sector in general.
The GoM was given a presentation by the national carrier`s
CMD Arvind Jadhav on a financial restructuring and turnaround
programme for short, medium and long terms. Under it, Air
India plans to reduce costs by about Rs 3,000 crore and
enhance revenues by Rs 2,000 crore annually.

On this basis, the cash-strapped carrier, estimated to
post losses to the tune of Rs 7,200 crore this financial year,
is seeking an additional equity infusion of Rs 2,000 crore and
a soft loan of Rs 3,000 crore from the government.

While the government has broadly agreed to support the
airline in its restructuring process, Patel said "these are
challenging times. The government`s support cannot be taken
for granted. It has to be matched by the airline."

The management and the employees should join hands to
evolve measures and implement them to bring the airline back
on track, he said.
Besides Mukherjee and Patel, the meeting was attended
by Petroleum Minister Murli Deora, Deputy Chairman of Planning
Commission Montek Singh Ahluwalia and Civil Aviation Secretary
M Madhavan Nambiar.

The Civil Aviation Minister said, "I appreciate the
efforts of the employees" in actively participating in cost-
reduction plans of the airline.

Describing them as the "backbone" of the carrier, he said
the employees and the management should "come together and
evolve workable solutions to cut costs and enhance revenue."

Patel said the GoM was awaiting a report from the
consultants and more inputs from the airline on the turnaround
plan. It would hold detailed discussions on the issue at the
next meeting.

The cash-strapped airline, which has an equity of merely
Rs 145 crore, is in the process of acquiring 111 new aircraft
at a list price of over USD 15 billion. It has inducted about
65 of them so far.

Besides the high fuel costs, a major reason for its
mounting losses is that its working capital borrowings have
crossed Rs 16,000 crore.

In a bid to convert its high-cost debt into low-cost, Air
India has been negotiating with some public sector banks to
avail an additional Rs 1,500-2,000 crore as working capital
loan at low interests. The loans are being sought to carry out
its day-to-day operations.

In its bid to raise funds, the national carrier has also
decided to lease out seven aircraft — three Boeing 777-200s
and four Airbus 310-340 freighters, and has floated global
expressions of interest.

The sources said a brand new Boeing 777, at present,
could fetch Air India over USD one million per month as lease
rental, whereas an A-310 could bring around USD 150,000 per
month. This would be a major source of revenue for the ailing
carrier.

The airline has also overhauled its route network in a
big way, introducing new aircraft on major routes to North
America and Europe and operating maximum number of all-economy
flights on high-density routes like the Gulf.

Another major issue relating cutting costs was the
management`s proposal to slash the productivity-linked
incentives and allowances of the employees, including the
pilots and engineers.

However, after a five-day strike by executive pilots in
protest, the proposal was withdrawn, the employees have
assured the management that they would jointly work out
various measures to reduce costs and strengthen the national
carrier financially.

Bureau Report



First Published: Wednesday, October 21, 2009 - 22:07

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