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Air India equity funding may come in tranches

Air India equity funding may come in tranches
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First Published: Mon, May 18 2009. 12 13 AM IST

Value addition: Air India is inducting seven Boeing-made, long-haul aircraft into its fleet this year. Ramesh Pathania / Mint
Value addition: Air India is inducting seven Boeing-made, long-haul aircraft into its fleet this year. Ramesh Pathania / Mint
Updated: Mon, May 18 2009. 12 13 AM IST
New Delhi: The newly appointed head of state-run National Aviation Co. of India Ltd, Arvind Jadhav, is scheduled to meet finance ministry officials on Monday to push for an early equity infusion to help bolster its fleet expansion programme.
Nacil, as the operator of Air India is known, has demanded equity infusion to the tune of Rs1,231 crore, and Rs2,750 crore in the form of a so-called soft loan on easy terms.
Value addition: Air India is inducting seven Boeing-made, long-haul aircraft into its fleet this year. Ramesh Pathania / Mint
This support will likely be offered in portions, linked to the airline’s performance, two government officials said, both asking not to be identified.
India’s airlines made $2 billion (Rs9,900 crore) in combined losses in the last fiscal and are finding it difficult to fund operations as travellers avoid flying in the face of an economic slowdown.
Nacil and its two private peers—Kingfisher Airlines Ltd and Jet Airways (India) Ltd—together have already piled up debt of $8 billion, making financial institutions averse to supporting them with more debt. In this fiscal, analysts expect the debt to increase to $10 billion.
The Mumbai-headquartered airline is in the middle of integrating the operations and a 33,000-strong workforce of two airlines, Air India and Indian Airlines. It plans to induct 111 planes at a cost of some Rs44,000 crore. Additional equity and loans from the government are critical for the carrier to tide over the transition, airline executives say.
In February, Nacil told civil aviation secretary M. Madhavan Nambiar that the carrier’s low equity base of Rs145 crore “versus borrowings for aircraft acquisitions of Rs44,000 crore” was leading to an “unfavourable debt-equity ratio”, and borrowings, from 17 banks and institutions, including those to cover unpaid bills to oil firms, had touched Rs13,830 crore.
The presentation has been reviewed by Mint.
An early equity infusion is at the top of the agenda for Nacil’s Jadhav during his meetings on Monday. Jadhav assumed charge from Raghu Menon on 4 May.
“We are fortunate there is the same government, there would be some continuity and we don’t have to explain the case again,” a senior government official, who asked not to be named, said, confirming the Monday meeting. The equity infusion and soft loan proposal was first made in August to the aviation ministry, but is yet to make any headway.
A second government official, who too requested anonymity, said the finance ministry is keen on expanding the airline’s equity base, but wants to see a clear plan on how the airline can turn itself around by increasing revenue. The ministry has asked the airline to come back with concrete proposals on how it will manage this equity infusion and reduce its losses.
If the infusion comes through, it will be the first time Nacil will see the government pumping equity funds into the carrier, which so far has relied on its own revenue.
Air India is inducting seven Boeing Co.-made, long-haul aircraft into its fleet of around 150 aircraft this year and plans to launch a non-stop New Delhi-San Francisco service after August. It will be its third non-stop route to the US after New Delhi-New York and Mumbai-New York that it has launched since 2007 and the longest by any carrier to or from India.
tarun.s@livemint.com
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First Published: Mon, May 18 2009. 12 13 AM IST