Air India gets Rs1,200 crore equity infusion

Government today approved the infusion of the second tranche of equity of Rs1,200 crore to ailing Air India with the condition that its management should rationalise the wage structure of over 25,000 employees.

Announcing the decision of the cabinet committee on economic affairs for further equity infusion, civil aviation minister Praful Patel said, "This will not only help restructuring the airline, but will also shore up its finances".

The first tranche of equity infusion of Rs800 crore was made in February this year for its revival plan.

"The infusion of enhanced equity fund would give the much needed impetus to Air India for its revival plan", an official statement said.

Sources said the equity infusion was being made in a phased manner as it was based on the performance parameters of Air India.

The official statement said the CCEA, while granting additional equity, "directed Air India management to work towards rationalisation of wage structure".

With the CCEA directive aimed at cutting costs, the National Aviation Company of India Limited (NACIL) received the official nod to go ahead with its plans to review and re-negotiate all agreements with its 14 unions.

Two of these unions were de-recognised following a flash strike three days after the May 22 plane crash in Mangalore this year.

At present, there are 10 wage agreements signed between these unions and the management.

The employees' unions have been opposing moves to slash wages or allowances, contending that the airline's wage bill was only 18% of the total turnover, as against a global average of about 22% for most international carriers.

The wage restructuring plans, proposed by the Air India management earlier, had also suggested freezing of payment of arrears for three years. Its total burden after three years was estimated at Rs218 crore.

There have been strong indications that the government intended to raise Air India's working capital to about Rs7,000-8,000 crore. The committee of secretaries had earlier recommended the infusion of an additional Rs5,000 crore.

But, the earlier tranche of equity infusion of Rs800 crore was primarily used by the flag carrier to meet its huge debt burden.

Keeping this in mind, the civil aviation ministry had proposed that the government provide sovereign guarantee to back the loans it has taken so far mainly to fund its fleet expansion. Such a guarantee would help the airline restructure its debts.

The Reserve Bank had recently asked the national carrier to provide a letter of support from the government due to a poor debt-equity ratio of the company.

The Air India board, which met in Mumbai few days ago, reviewed the financial performance which showed improvement in revenue, yields and overall passenger load factors since its turnaround plan came into operation.

During April-November this year, Air India recorded network revenue of Rs7,250 crore as against Rs5,911 crore achieved during the corresponding period last year, reflecting a growth of 22%.

According to official figures, the airline's yield per revenue passenger kilometre on its network rose by 12.2% during the period, as it registered an overall passenger load factor of 66.3% between April and November, up from 63.1% a year ago.

The national carrier had also sought government's nod to operationalise six strategic business units (SBUs) relating to low cost airline, cargo, maintenance, repair and overhaul (MRO), grounding handling, engineering and related business.

In 2007 when the erstwhile Air India and Indian Airlines were merged into NACIL, it was decided that these SBUs would act as separate profit centres. But without the government clearing this proposal, the SBUs cannot be operationalised.