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Cash-strapped Air India asks for Rs 20,000 crore bailout

Cash-strapped Air India-Indian Airlines has sought an immediate loan of about Rs 10,000 crore from the government along with an annual equity infusion of Rs 2,500-3,000 crore for the next four to five years, which will be linked to the induction of new aircraft into its fleet, sources said.

In all, the tottering airline on Saturday projected a requirement of almost Rs 20,000 crore, roughly the size of Delhi state’s annual budget, over the next five years.

The assistance was sought during a presentation to the committee of secretaries (CoS), which is headed by cabinet secretary K M Chandrasekhar. The finance ministry has now been asked to determine the extent of help AI should get, once it prepares a detailed plan, to be reviewed by the CoS in a month’s time.

Aviation minister Praful Patel said that the initial equity infusion would be limited to Rs 2,000-2,500 crore. The government may make only a partial contribution. The balance will be raised from the market via the IPO route at a later date, he said. Patel assured that the equity sought from the government would be kept low. AI is also learnt to be looking at an immediate soft loan of about Rs 10,000 crore from the government.

The airline currently has an equity base of Rs 145 crore. The merged airline, National Aviation Company of India Ltd (NACIL), accumulated losses of Rs 7,200 crore till March. The AI-IA combine is to receive 111 new aircraft worth $11 billion (list price) to replace decades-old planes in its fleet. Until now, 51 new planes worth $4 billion have joined the fleet. But the slowdown, which has hit all airlines, has affected the already struggling AI particularly badly and it needs a massive cash infusion to stay in the skies.

So, armed with a plan for cost-cutting and revenue enhancement, AI chief Arvind Jadhav met the CoS to seek a bailout. The CoS, which includes the finance and aviation secretaries Ashok Chawla and M M Nambiar, was set up to examine issues related to the national carrier after Prime Minister Manmohan Singh met Patel last month.

Making a presentation to the committee of secretaries (CoS) on Saturday to get bailout funds may be the easy part for National Aviation Company of India Ltd (NACIL) — the Air India-Indian Airlines combine. For, cost-cutting moves like salary slashing, returning of expensive planes and creating new revenue generating streams, admit top officials, will be an uphill task.

However, it was made abundantly clear to NACIL that any financial help from the government will come, if and only if, NACIL is able to convince it about two things — it has a plan, and more importantly, that it can implement it. Also, any assistance from the government would have to be matched by an aggressive cost reduction, including a drastic cut on salaries, and a better revenue management by NACIL and that it must come up with a concrete cost reduction proposal.

Significantly, the CoS decided that NACIL would appoint a cost auditor immediately to monitor, review and ensure that the cost reduction and operational efficiencies are effected, a statement issued by the aviation ministry after the CoS meeting revealed.

On the salary front, AI and IA give their 31,000-odd employees performance-linked incentives (PLI), which comprises almost 60-80% of their overall pay package at senior levels. NACIL has an annual wage bill of Rs 3,100 crore for its 31,000 employees, with PLI accounting for almost half the salary expense. Now, AI is trying to cut the PLI but reaching an agreement with unions could be more difficult than pruning some staff through leave without pay or VRS routes.

During the Saturday meeting, NACIL chief Arvind Jadhav told the CoS that the airline needs the new aircraft to compete in market. With a price tag of $11 billion, these new planes will mean a huge repayment liability for the cash-strapped airline.

‘‘We currently have over 40 leased planes that were taken on very high rentals in a period when air traffic was booming, aircraft were in short supply and lease rentals were high. The monthly lease bill is about Rs 100 crore. These planes will be returned but in this depressed market conditions, the aircraft owners are not willing to terminate leases easily as they may not be able to find takers for these planes after getting them back,’’ said a senior official.

The idea is to save money on lease dole outs and, instead, use that for paying for the new planes that would also be very fuel efficient unlike the old rented ATF guzzlers. But getting the companies to take the planes back is going to be a huge challenge. A leased Boeing 777, for instance, has a monthly rental of $9 lakhs.

During the two-hour meeting, a presentation was made to the committee of secretaries (CoS), which is headed by cabinet secretary K M Chandrasekhar by the ministry and SBI Caps on financial restructuring, which basically means cost-cutting and enhancing revenue. T

The airline also told the panel that it needed new aircraft to phase out the old ones in its fleet in order to compete. NACIL said it will reduce its annual wage bill of Rs 3,100 crore by finding a low-cost alternative to the performance-linked incentive that employees get and which accounts for nearly half of the total salary bill.

The CoS asked NACIL to immediately appoint a cost auditor. They have presented an annual cost-cutting plan but that was not specific. AI has to come up with a more detailed plan, possibly with quarterly benchmarks, whose progress can be monitored.

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