Air India losses tipped to be Rs 3,900 cr in 2013-14

Written by Rhik Kundu | Mumbai | Updated: Jan 8 2014, 18:56pm hrs
Air IndiaDespite its revenues taking off, Air India?s bottomline will remain grounded for another year. Reuters
Despite its revenues taking off, Air Indias bottomline will remain grounded for another year. The national carrier expected to post losses in the region of Rs 3,900 crore for 2013-14, senior company executives estimate, despite a projected 18% jump in revenues to Rs 19,500 crore. With the Jet-Etihad alliance through and the Tata-SIA combine waiting in the wings, Air India will find it hard to fight back given its finances are in a shambles.

Air India officials said the airlines turnover had risen 14% year-on-year between April and December. While the carrier will remain in the red, the loss will be smaller than the Rs 5,200 crore reported for 2012-13 and Rs 7,560 crore posted the year before. Air India awaits an equity infusion by the government of Rs 3,500 crore in the current year and officials say the funds should be in by March. Meanwhile, the carrier has borrowed Rs 2,000 crore against a guarantee from the government at an interest rate of 10.5-12%.

Air Indias turnaround plan which envisages equity infusion by the government of Rs 30,000 crore over a nine-year period to 2021 is held up with the airline having asked the government to reconsider the plan in the light of the sharp depreciation in the rupee to the current level of 62 against the dollar from R45 assumed earlier. Moreover, the sharp hike in crude price to $110 per barrel from $87 per barrel has meant higher fuel costs. Officials explained that while nearly 65-70% of the carriers expenditure was dollar- denominated around 40% of its collections were in foreign currencies. The plan is being considered by the finance ministry, executives told FE.

The over-leveraged carrier is in dire need of equity. Much of the airlines financial problems can be traced to the high interest bill arising from the debt on its balance sheet of a whopping Rs 44,000 crore, half of which is aircraft-related. Of the balance, nearly Rs 18,000 crore represents long-term working capital loans. Moreover, the carrier has been unable to offer employees a voluntary retirement scheme, which would have cost it Rs 1,000 crore, and despite the manpower to aircraft ratio falling to 1:100, the salary bill for 2013-14 will be a fairly hefty Rs 3,200 crore.

We have rationalised some routes, grounded some aircraft and returned some of the leased aircraft so the losses will come down this year, a company executive explained. He added that a newer fleet had resulted in greater efficiencies while a freeze on hiring in some departments, as also some changes in the salaries, had helped bring down costs.

Over the past year, Air India has scrapped loss-making long-haul routes to Toronto and Los Angeles. The carrier has also phased out 14 old aircraft and returned 43 leased planes, bringing down maintenance costs. Moreover, 91 new planes, including the Dreamliner, have been inducted into the fleet.

In the meantime, company officials said Air India has hit most of the milestones it was required to. For instance, in the April-September period, the airline achieved an on-time performance (OTP) of 83% with the domestic OTP at 85% and the international OTP at 78.4%. At the end of October 2013, Air India had a share of 19.8% in the domestic market compared with 29.5% for Indigo and 17.1% for Jet Airways, according to DGCA data.

While the airline had hoped to improve its finances by monetising some of its properties, the progress has been limited. It has rented out four floors in Air India Building (AIB) to State Bank of India and other floors are in the process of being rented out. The Bhartiya Mahila Bank is now located in AIB. We have also been able to sell off certain properties at Kolkata and Coimbatore yielding Rs 40 crore and are working on others in Gurgaon and Mumbai Sterling Apartments, an official said. Air India hopes to raise nearly Rs 250 crore in the next two months through the sale of property while the target, over a period of 10 years starting FY13, is Rs 5000 crore.