Air India restructuring plan by 25 July

Air India restructuring plan by 25 July
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First Published: Fri, Jul 17 2009. 12 22 AM IST

Relief plans: Nacil chairman and managing director Arvind Jadhav. Harikrisha Katragadda / Mint
Relief plans: Nacil chairman and managing director Arvind Jadhav. Harikrisha Katragadda / Mint
Updated: Fri, Jul 17 2009. 12 22 AM IST
New Delhi: Air India, the country’s largest carrier by fleet size that is run by National Aviation Co. of India Ltd, plans to submit a fresh restructuring plan running over the next two years to a committee of secretaries on 25 July, setting the road ahead for the financially stressed airline, according to senior executives at the state-run firm and civil aviation ministry officials.
The plan sets six-month milestones for operations, they added.
Under increasing pressure to seek funds, after debt obligations became equal to revenues, Air India was asked by Prime Minister Manmohan Singh late last month to prepare a road map for a return to profitability in exchange for equity infusion from the government and other financial support, after the national carrier approached the government for help.
“It will be presented to the committee on 25 July,” a ministry official, who asked not to be named, said of the restructuring plan under preparation.
Relief plans: Nacil chairman and managing director Arvind Jadhav. Harikrisha Katragadda / Mint
The committee is headed by cabinet secretary K.M. Chandrasekhar, with members including finance secretary Ashok Chawla, civil aviation secretary Madhavan Nambiar, and T.K.A. Nair, principal secretary to the prime minister.
Air India’s chairman and managing director Arvind Jadhav has already asked heads of businesses such as cargo and engineering at the company to contribute to a new business plan, a senior company executive said.
These heads are expected to make a presentation to Accenture Ltd, SBI Captial Markets Ltd and Jadhav next week before finally submitting it to the government on the weekend.
Management consultant Accenture was engaged to help the merger of erstwhile Air India Ltd, an airline that mostly flew foreign skies, and erstwhile domestic carrier, Indian Airlines Ltd into Nacil, as the company running the Air India service today is called in short.
SBI Capital has been engaged as financial counsel for the current round of restructuring.
“There will be a recruitment freeze for next three years. It will also cut routes that are making cash losses in the US, the UK and West and South-East Asia. Besides, the carrier will return about 50 planes to lessors and has suggested deferring the deliveries of around 10 new planes,” said a second Air India executive, a director, wanting not to be named.
The third airline executive said one major reason for Air India’s losses came from running its service on loss-making routes and this can only be changed if government stops interfering or it cannot shy away from supporting the carrier.
“The government technically keeps pointing out, ‘Go here, go there’ (or) ‘Don’t remove flights from this state, that state, you are national carrier’,” this executive said.
In a presentation made by Air India to the prime minister last month, the airline said it would look at a massive overhaul over the next three years.
In fiscal 2010, the airline plans to overhaul its operations and financial structures, Nacil said in a presentation reviewed by Mint. Air India plans to save between Rs1,300 crore and Rs1,800 crore by reducing costs, including some Rs300 crore in fuel expenses, Rs800 crore in salaries, and Rs500 crore saving on expenses flying on unprofitable routes.
It also plans to increase revenue by Rs1,200-1,400 crore. This would be through a possible increase in passenger revenues by Rs900 crore, cargo by between Rs100 crore and Rs600 crore, and Rs200-400 crore to be realized through alternative use of its real estate.
The airline also promised to effect a “large-scale” redeployment of its 31,000 employees, review of performance-linked incentives and closure of all overseas offices where the airline has stopped flying.
In the next fiscal, the national carrier plans to complete a business restructuring exercise which will include embracing a low-cost model for domestic operations and creating subsidiaries for cargo and maintenance operations, ahead of preparations for an initial public offer.
In fiscal 2012, the airline plans to go in for additional sale of shares to public, Indian financial institutions and other institutions approved by the Indian stock markets regulator.
Unlike in the past, when aircraft payments have been made from its internal resources, Air India had said it cannot meet the requirements it has to fund the purchase of 111 planes costing Rs50,000 crore on its own. Of this 2005 order, some 51 have been delivered. The airline’s working capital liabilities have increased from Rs2,369 crore in March 2006 to Rs15,241 crore by June this year.
In the current fiscal, Air India will need to draw another Rs10,000 crore for aircraft funding and principal and interest payment will account for Rs9,000 crore for next three years for aircraft alone. “Projections/business plan at time of purchase have been found to be unrealistic as market conditions have changed,” it said adding its provisional losses in the last fiscal stood at Rs5,300 crore.
The aviation ministry official quoted earlier said the list of new potential candidates for the Nacil board drawn from fields of finance, law, hospitality and information technology are likely to be sent to the prime minister soon for selection.
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First Published: Fri, Jul 17 2009. 12 22 AM IST