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