The Star Alliance is a global network of 17 airlines linking 855 airports in 155 countries. Joining it will help Air India increase passenger yields through code sharing and interlining agreements. That would also give it an edge over private sector rivals Jet Airways and Kingfisher Airlines, which have both launched international routes.
However, all three airlines are struggling financially due to rising costs and slowing revenues. Last month, Air India saw a 15% drop in domestic load factors and a 13% dip in international travel owing to higher airfares and the economic slowdown. The company lost Rs 2,000 crore in 2007-08.
The carrier is also asking for a Rs 1,800-crore soft loan and Rs 2,750 crore equity support. Air India CMD Raghu Menon is understood to have requested a three-year moratorium on loan repayments. While the finance ministry has set an 11% interest rate for loans to public sector undertakings this fiscal, Air India is negotiating for a rate between 6% and 10%.
The airline is hoping to upgrade its IT network before the March 2009 deadline set by Star Alliance. It also has to pay a registration fee to join the alliance. However, Air India director (PR) Jitendra Bhargava has denied that the company approached the government for a soft loan. We only asked the government for equity infusion earlier, he said.
An analyst from a Mumbai-based broking firm, who tracks the aviation sector, said, Air India has gone through difficult phases in the past. Given the current situation, when it is running into huge losses, it can add a lot of value to its customers by joining the Star Alliance.
Air India had earlier planned to raise Rs 1,000 crore from banks and financial institutions to meet its working capital needs. It is also planning to raise long-term credit of Rs 17,500 crore through a consortium of banks to finance its aircraft acquisitions.