Cabinet likely to decide on equity infusion in Air India tomorrow

The Union cabinet is likely to take a decision on the much-awaited equity infusion of Rs1,200 crore in Air India at its meeting tomorrow.

A cabinet note, circulated by the civil aviation ministry on the issue a few weeks ago, might be taken up for consideration by the cabinet committee on economic affairs (CCEA), sources said.

In addition to the Rs1,200 crore equity, the ministry is understood to have mooted a proposal for further infusion of Rs2,000 crore as equity in the next financial year.

Civil aviation minister Praful Patel had recently told PTI that the national carrier would require additional equity to meet its mounting debt burden in addition to the proposed Rs1,200 crore equity.

The government intends to raise its working capital to about Rs7,000-8,000 crore, he had indicated.

Patel had also met Prime Minister Manmohan Singh recently when the issue is understood to have come up for discussion.

The committee of secretaries had earlier recommended the infusion of an additional Rs5,000 crore. In the last financial year, the government had given Rs800 crore as equity, which was primarily used by the airline to meet its huge debt burden.

The infusion was being made in tranches to make the airline more accountable and improve its performance by enhancing revenues and cutting costs drastically.

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.

Air India has also suggested 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 recently asked the national carrier to provide a letter of support from the government due to a poor debt-equity ratio of the company.