Nacil’s bailout request runs into trouble

Nacil’s bailout request runs into trouble
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First Published: Thu, Nov 13 2008. 12 19 AM IST

Ownership pangs: Nacil chairman and managing director Raghu Menon had said the airline was seeking a loan at reduced interest rates. Harikrishna Katragadda / Mint
Ownership pangs: Nacil chairman and managing director Raghu Menon had said the airline was seeking a loan at reduced interest rates. Harikrishna Katragadda / Mint
Updated: Thu, Nov 13 2008. 12 19 AM IST
New Delhi: The state-run National Aviation Co. of India Ltd or Nacil’s request for a Rs4,000 crore bailout from the government to help it overcome financial and operational challenges posed by the slowdown in business and an ongoing merger—Nacil was created by merging Air-India and Indian—has run into trouble, said a senior government official, because the company hasn’t provided details of how it plans to spend this money.
Ownership pangs: Nacil chairman and managing director Raghu Menon had said the airline was seeking a loan at reduced interest rates. Harikrishna Katragadda / Mint
India’s airlines, faced with mounting losses and slowing passenger traffic, are lobbying the government for a bailout. The country’s three largest airline firms Nacil, Jet Airways (India) Ltd and Kingfisher Airlines Ltd are scouting for funds. Domestic airlines here reported a fall of around 13% in passenger traffic in October compared with the same month a year ago, and ferried 3.13 million passengers, according to data released Wednesday by the Directorate General of Civil Aviation.
Nacil is looking to raise money from the sale-and-lease-back of aircraft (when it sells planes it owns to a finance firm and leases it back), allowing employees to take extended breaks without pay, and seeking funds from its “owner”, as the airline’s spokesperson terms the government.
Nacil’s new fund requirement is almost equal to the losses it could make by the end of this fiscal year, according to an analyst. It is almost double what it had previously sought.
“The numbers are certainly more,” said the government official who did not wish to be named because of the sensitivity of the issue. Mint had reported in July that Nacil had asked for Rs1,300 crore in equity and Rs1,000 crore as debt from the government. These numbers have now been increased to Rs1,231 crore in equity and Rs2,750 crore in debt.
The civil aviation ministry is processing this request but cannot forward it to the finance ministry without details of how this amount will be spent. “We have asked them to provide us with details of utilization. It’s still not clear (how they plan to use it),” the official said.
Nacil executive director Jitender Bhargava said the company is seeking money from the government “by virtue of its ownership” but declined further details.
Nacil’s chairman and managing director Raghu Menon had told Mint in an interview last month that the airline was seeking a loan from the government which it can repay in over a dozen years at reduced interest rates with repayment starting after a three-year gap.
An analyst said Nacil will likely account for nearly half the losses of the airline industry this year of about Rs8,000 crore. He added that Nacil, Jet Airways and Kingfisher Airlines together need nearly Rs2,500-3,000 crore over the next six-nine months to stay afloat.
“The fact of the matter is that Air India (the brand under which Nacil flies), like all other carriers, is seeking funding. It’s only a matter of time before desperation kicks in. They have got a principal stakeholder as the government which has the ultimate responsibility of continued operations at that airline,” said Kapil Arora, an aviation analyst with audit and consulting firm Ernst and Young.
Arora said he does not believe that the slow pace of the merger of Air-India and Indian has anything to do with the losses. He added that these were largely a result of increased fuel costs, excess capacity, flying unprofitable routes and lower yields. Arora said the airline suffers from the “disadvantage” of not being able to “retrench” workforce and should look at increasing flight occupancy, improve yields and reduce flights on unprofitable routes to tide over the crisis. “The next two quarters are going to be very very challenging (for all the carriers),” he said.
Air India has so far raised over $3 billion from international banks for the acquisition of 38 of the 111 planes it has ordered from Airbus SAS and Boeing Co. in 2005. It needs to raise money to pay for 73 more aircraft that are to be delivered between now and 2012. The new planes will almost entirely replace old ones in its 140-strong fleet.
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First Published: Thu, Nov 13 2008. 12 19 AM IST