Home minister P Chidambaram, a member of the group of ministers (GoM) on Air India, has expressed doubts over the feasibility of the airline?s financial revival plan prepared by consultancy firm SBI Caps. Finance minister Pranab Mukherjee, who heads the GoM, was also not too happy with the proposal and told Air India in the latest GoM meeting that equity infusion in the airline, one of the components of the revival package, can happen only after the GoM considered all relevant aspects.
The investment banker, SBI Caps, has suggested conversion of 60% of the total working capital debt of the carrier into long-term loan at a lower interest rate and issue of cumulative preference shares for the remaining amount. This has not impressed the home minister, sources said. Chidambaram is learnt to have said in the GoM meeting that the proposal ? the short summary of which is that the airline requires a debt write-off and also infusion of equity ? might not offer a solution given the present financial performance of the firm.
On his part, Mukherjee asked the civil aviation ministry to expedite the financial restructuring plan of Air India, while addressing the queries raised by the department of expenditure. Mukherjee has made it clear that the next round of equity infusion in Air India will only happen after the report of a Group of Officers was examined. A committee of officers headed by the special secretary (expenditure) in the finance ministry is in the process of vetting the ?ambitious? turnaround plan prepared by advisory firm Deloitte.
The next meeting of GoM slated for next week is expected to consider Air India?s demand for another round of financial assistance to the tune of R1,229 crore. State-owned Air India is saddled with a debt of over R42,000 crore and an accumulated loss of R22,000 crore as on March 2011.
?The government has to inject cash into the airline at the earliest. Air India is headed for a loss of over $2 billion in 2011-12,? Centre for Asia Pacific Aviation (CAPA) India head Kapil Kaul said.
The government has so far provided an equity infusion of R3,200 crore to the airline in three tranches, thus helping the carrier to pay salaries and meet operating expenses. The poor financial health of the carrier has forced Air India to defer salaries and monthly payments to spare parts vendors and fuel suppliers.
Experts said infusion of more funds in Air India will not solve its problems. ?Air India does not seem to have a strategy in place for its revival. It is selling tickets at irrational prices and below their cost which would only compound problems. The government may infuse funds but that does not solve the problem. The airline would again run out of money given its business model,? Sharan Lillaney, research analyst at Angel Broking said.
Air India has reported worst operating performance among its peers with its aircraft utilisation being the lowest in the industry. The airline is losing R20 crore a day as its cash inflow is much lower at R36 crore as against daily outgo of R57 crore. With losses mounting by the day the civil aviation minister Vayalar Ravi recently said that airline may pull out from some of the routes it is not making profit. Its turnaround plan envisages replacement of larger jets with smaller one on short-haul routes connecting smaller cities.
The ministerial panel would review the financial performance of Air India and also consider the airline?s demand for fund infusion depending on the recommendations made by the committee of officers.