Aviation Ministry to move proposal for turnaround of AI

Last Updated: Saturday, August 29, 2009 - 18:55

New Delhi: The Civil Aviation Ministry would soon move a proposal for financial assistance to and restructuring of cash-strapped Air India.

This was decided at the high-level meeting of Committee of Secretaries, headed by Cabinet Secretary K M Chandrasekhar, which met here today to review the turnaround plan of the national air carrier.

Official sources said the CoS directed the Civil Aviation Ministry to move a proposal for consideration of the Cabinet in consultation with the Finance Ministry.

While Air India made a presentation on its turnaround plan to the CoS, the Finance Ministry also made projections on how the ailing national carrier could be helped by the government to enable it come out of the financial crisis.

The Committee felt that Air India needs to adopt more aggressive cost reduction measures and "examine its strategic position with respect to its shareholders objectives," the sources said.

While the government may make only a partial contribution as equity infusion to the airline, a major part of resource mobilisation is likely to be through options like partial divestment of government equity, issuance of Initial Public Offer or infrastructure bonds, sources said.

At the first meeting of the CoS last month, Air India had sought an equity infusion of about Rs 2,500-3,000 crore and a loan of Rs 10,000 crore at 5-7 percent interest for repayment over five years.

The carrier`s losses have gone up to Rs 7,200 crore in 2008-2009, while it has a debt of Rs 16,000 crore. It has started negotiating with banks and financial institutions to turn its high-cost debt of Rs 10,000-11,000 crore into low-interest loans.

However, the banks wanted the national carrier to get a comfort letter or a sovereign guarantee to convert these high- cost debt, which the government has agreed upon, sources said.

At the meeting, the Finance Ministry made projections on the quantum of equity infusion and the soft loan which could be given to the ailing carrier by the government.

The government has also asked the Petroleum Ministry to extend the credit limit on the purchase of jet fuel by Air India for at least three more months, they said.

Air India CMD Arvind Jadhav made a presentation on the turnaround plan spread over 36 months as well as the steps taken in the past two months to reduce costs, enhance revenue and transform business practices.

The CoS maintained the airline company now needed to "examine its strategic position with respect to its shareholders` (government) objectives".

The CoS, which also comprises Principal Secretary to Prime Minister T K A Nair, Finance Secretary Ashok Chawla and Civil Aviation Secretary M Madhavan Nambiar, has made it clear that any assistance from the government would have to be matched by an "aggressive" cost reduction and a better revenue management by Air India`s parent company NACIL.

A separate cost management and audit team is looking at the airline`s financial restructuring plan, including debt servicing, risk management and hedging on ATF.
The national carrier is in talks for cancellation of orders for six Boeing 777s long-haul planes meant for delivery between 2010 and 2012. As of now, it has a 136-aircraft fleet, of which 53 are new ones which have replaced the aged and leased aircraft.

Another significant measure to cut costs and enhance revenues was the proposal to allow Air India Express, the low- cost entity, to launch domestic operations from next month by deploying 10 additional all-economy aircraft.

The national carrier was estimating an earning of Rs 180- 200 crore through low-cost operations on the domestic sector and planning to gradually shift 70-75 percent of its existing domestic flights to Air India Express.

On the manpower front, talks are on with 14 unions on proposals to cut incentives by half and redeploy manpower.

However, with a majority of employee unions spurning the
Air India management`s proposal, four committees have now been
set up to focus on specific segments to review the whole
issue, a source said.

Bureau Report



First Published: Saturday, August 29, 2009 - 18:55

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