Rs23,000 crore equity shot for Air India mooted

A group of ministers (GoM) led by finance minister Pranab Mukherjee on Friday recommended Rs23,000 crore equity support for the ailing Air India over the next 10 years.

That’s almost half of what the airline had sought and would be dependent on a slew of performance parameters.

Government officials present at Friday’s meeting said Air India needs to improve its passenger load factor (percentage of seats of a plane occupied) to 73% by 2015 and to 75% by 2020 to qualify for the equity infusion. Its current load factor is 69.5%.

One of the officials said the airline presented seven scenarios for an equity bailout and the GoM saw the one with Rs23,000 crore as the best case.

The recommendations will now be forwarded to the Cabinet for approval.
For this fiscal, the airline will be provided

Rs6,500 crore as equity support.
The officials also said that the GoM has asked Air India to seek provisioning from the Reserve Bank of India for converting its Rs22,000 crore short-term working capital loans into long-term debt. This has to be done over the next eight days and could save the airline up to Rs1,000 crore each year in interest payments.

Also, the government has again exerted its influence to ensure that oil marketing companies provide the loss-making carrier a further three-month reprieve in paying fuel bills. As of now, the airline is on a cash and carry basis - which means it has to pay for fuel bills upfront.
Meanwhile, the airline’s order of 27 Boeing Dreamliners is in trouble. The GoM on Friday decided to refer the order to the Cabinet for a final decision after examining two scenarios: halve the order to just 14 planes instead of the earlier 27 or take all of it on sale & leaseback instead of outright purchase.

As reported by DNA on September 16, the cash-strapped airline is likely to halve the order and prune overall fleet expansion plans in a bid to qualify for government’s equity infusion criteria.

The cautious approach of the GoM comes after the Comptroller & Auditor General ticked off the airline management for undue haste in ordering aircraft earlier.

The Dreamliners are part of the same order. Deliveries are delayed by over three years and the first aircraft is expected only this December.

The aircraft are crucial for
Air India’s turnaround since the airline currently lacks any medium-haul aircraft in its fleet. Once the aircraft start arriving, the airline would reopen lucrative sectors such as Malaysia.

Air India has been seeking compensation from the Boeing Co for delayed deliveries and the aircraft manufacturer has been told about the Rs6,000 crore estimated revenue loss because of the delay.

Now, if only 14 will be taken, the ailing national carrier will have to rework its route expansion plans, specially in the medium haul international destinations.