Air India equity infusion meet on February 3

A crucial meeting of the Group of Ministers (GoM) on aviation has been called on February 3. Headed by Finance Minister Pranab Mukherjee, this GoM will take up issues pending under the civil aviation policy, and also look afresh at the equity infusion demand for state carrier Air India.

The GoM meeting assumes significance since it is expected to tackle the long-pending issue of removing the five-year mandatory domestic operations clause for Indian carriers wanting to fly overseas. The ministry of civil aviation has long held that the five-year domestic operation clause can be removed, but some factions in the government have opposed this idea.

Permission to fly overseas would essentially help relatively younger airlines to refuel at cheaper prices abroad (aviation turbine fuel is cheaper in countries like Singapore), besides boosting their revenues through short-haul overseas flights.

The ministry has been suggesting that instead of barring airlines from overseas operations for five years, the government could consider making such permission conditional on the number and size of the aircraft an airline possesses, and other indicators of its financial health. This proposal has faced stiff opposition in the past from Air India as well as some private airlines, who perceive a threat to their international load factors.

Other pending issues under the civil aviation policy include a comprehensive ground handling policy, a cargo policy and also the issue of allowing foreign carriers to acquire stakes in Indian carriers. But none of these three issues may be taken up at this GoM meeting.

The foreign carriers’ issue is stuck due to opposition from certain groups in the government, citing sensitivity of the airline sector. The ground handling policy implementation has already been delayed by a year, and even the cargo policy is nowhere near a draft.

On the Air India muddle, the GoM is expected to examine the cost reduction and revenue generation measures proposed by the
carrier. Of the Rs 5,000 crore equity support sought by AI, the government has only released Rs 800 crore this fiscal, and is expected to release another Rs 1,200 crore in 2010-11, provided it is satisfied with cost reduction and revenue generation measures of the airline.

The GoM would comprise the Union ministers of civil aviation,
finance, home, law, commerce and tourism.