The government is likely to halve Air India?s demand for equity infusion of Rs 5,000 crore. A committee of secretaries (CoS) will meet today to discuss restructuring plans of the cash-strapped carrier. Air India CMD Arvind Jadhav and other senior officials of the company will make a presentation to the secretaries? panel, headed by the Cabinet secretary KM Chandrasekhar.
Air India would present a medium-term turnaround strategy to the CoS, which includes civil aviation secretary MM Nambiar, finance secretary Ashok Chawla and principal secretary to the Prime Minister TKA Nair. The government is likely to agree on an equity infusion of up to Rs 2500 crore into the carrier, a secretary level official said. The airline has accumulated huge losses of more than Rs 7,200 crore over the past two years and its losses in 2008-09 alone amounted to Rs 5,000 crore.
Air India had, in June, stated to the civil aviation ministry that it required a bailout package of Rs 14,000 crore to tide over the financial crisis. It has demanded equity of Rs 5,000 crore, a grant of Rs 2,000 crore and a soft loan of Rs 7,000 crore. The government is unlikely to provide any grant to the company, even though a soft loan could be considered at a later stage, an official said, adding that an equity infusion of around Rs 2,500 crore will help the company leverage an additional Rs 15,000. Air India has exhausted its existing Rs 16,000-crore working capital limit.
Officials also added that the government would seek a time-bound commitment on breaking even before finalising any fund infusion plans for the beleaguered carrier. The CoS would ask the carrier to cut down on unprofitable routes, both domestic and overseas and pare its incentives and allowances to the staff, which alone accounted for almost 50% of the airline?s annual wage bill of Rs 3,000 crore. Currently, only 10% of Air India ?s flights are able to cover costs, the rest suffering losses. The CoS was formed after civil aviation minister Praful Patel discussed Air India ?s ailing condition with Prime Minister Manmohan Singh on June 25.
The government wants the airline to cut most of the loss-making routes, excluding only those mandated under the route dispersal guidelines, which require an airline to fly to uneconomic routes, such as in the North Eastern region. The government also wants to the carrier to put a moratorium on all wage escalation agreements that have added to the costs. Besides, the carrier is likely to be asked to send back all the leased planes.
?The carrier could take around three years to come into shape,? an official said. The government has also appointed SBI Capital Markets Ltd to prepare a short, medium and long-term restructuring proposal for Air India.