In a year when the competition among Indian airlines is slated to intensify with new entrants like Vistara and AirAsia India looking to beef up operations, Air India might be left hamstrung due to the cut in budgetary allocation to the national carrier. Finance minister Arun Jaitley announced that the budgetary allocation to Air India for 2015-16 would be R2,500 crore, less than half of the R6,500 crore allotted to it in FY15.
Air India is obviously disappointed and is planning to request an additional allotment of R1,700 crore, said a senior airline official, on the condition of anonymity. If that doesn’t work, AI will have to significantly improve its operational performance and cut costs to offset the loss in contribution from the parent. AI had asked the finance ministry for R4,200 crore in 2015-16 to repay debt, strengthen operations and hire staff, as it strives to return to profitability by FY19.
The government had budgeted R6,500 crore for the carrier in FY15, and R6,000 crore in FY14.
Air India has to spend around R216 crore a month to repay dues to lenders. It doesn’t expect its current debt servicing capacity to be affected beacuse of the reduced allocation.
“We repay banks and financial institutions about $35 million a month, which includes both government-guaranteed loans and other loans.
While the government equity infusion only accounts for government-backed loans, which is relatively a smaller portion of the debt, we pay the remaining dues from our operational cash flows,” the Air India official said.
However, even if the government doesn’t hike its equity contribution, it will go ahead with its plans to hire 600 cabin crew members in calendar year 2015. But it will have to create additional financial headroom through stronger operations.
“As of February, Air India’s yield per km on domestic routes stood at R5.60 while the average domestic load factor was above 80%. If further infusion doesn’t come through, we will have to achieve a yield of R6/km on domestic routes and a PLF of at least 83%,” the official said, adding that if the current performance level could be sustained, it won’t be a difficult task.
Jaitley’s move to cut the equity contribution may also have been influenced by the lower jet fuel prices. The AI official confirmed that the carrier will save around R1,500 crore next fiscal if the rupee and jet fuel prices are stable at their current levels.