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Loss-hit Nacil may now seek up to Rs15,000 crore bailout

Loss-hit Nacil may now seek up to Rs15,000 crore bailout
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First Published: Tue, Jun 23 2009. 10 53 PM IST

Seeking aid: An Air India aircraft at New Delhi airport. Air India has proposed cost-cutting measures, termination of aircraft leases, possible deferment of plane deliveries and restructuring of aircr
Seeking aid: An Air India aircraft at New Delhi airport. Air India has proposed cost-cutting measures, termination of aircraft leases, possible deferment of plane deliveries and restructuring of aircr
Updated: Tue, Jun 23 2009. 10 53 PM IST
New Delhi: Buffeted by increasing losses, state-owned National Aviation Co. of India Ltd (Nacil), which runs the Air India service, plans to seek up to Rs15,000 crore in bailout funds from the Union government, nearly four times the amount sought last year and far more than what the ailing firm had pitched for as late as Monday.
A final decision on the extent of funds to be sought was not taken at a Tuesday meeting aviation minister Praful Patel held with Nacil’s chairman and managing director Arvind Jadhav, aviation secretary M. Madhavan Nambiar and senior Nacil executives. But a senior government official said it would likely be more than the Rs9,500 crore the airline has been asking the government for in presentations made to top officials since Saturday.
Seeking aid: An Air India aircraft at New Delhi airport. Air India has proposed cost-cutting measures, termination of aircraft leases, possible deferment of plane deliveries and restructuring of aircraft loans. Ramesh Pathania / Mint
That amount was based on the airline’s estimate of its working capital requirements and almost double the Rs4,000 crore the airline was lobbying for last year.
It was not immediately clear on Tuesday how Nacil had arrived at the Rs15,000 crore amount but the official said it was likely that the airline would ask the government to disburse the funds in instalments, starting with at least one-fourth of the proposed amount to tide over immediate funding troubles.
Nacil’s accumulated losses had mounted to Rs7,200 crore as of end-May, according to a funding proposal prepared by the airline in recent weeks, with losses of Rs600 crore in April and May alone. This exceeds the earlier estimates of the national carrier’s losses pegged at Rs4,000 crore.
Airline firms in India have lost around $2 billion (Rs9,780 crore) in the last fiscal, and global industry grouping International Air Transport Association says India’s carriers are likely to contribute around a quarter of the $9 billion projected industry loss this fiscal even though they make up for just 2% of the passenger traffic.
“The airline, along with the civil aviation ministry, is looking at measures to bring about reduction of costs and improve revenue generation. (The) government is also looking at various options of assistance to help the airline come out of the financial crisis,” said a second senior government official, who too asked not to be named since a final decision on the bailout is pending.
The government owns Rs145 crore in equity in Nacil.
Nacil’s finances have deteriorated in recent years as aircraft purchase costs (it has some 66 planes on order from Boeing Co. and Airbus SAS until 2014) and related financing charges have risen sharply at the airline, on the one hand, and pressure on revenues and profits increased, on the other, as it faces competition from other airline rivals domestically and internationally.
According to the Nacil proposal presented, and reviewed by Mint, the airline’s working capital requirement had increased to Rs16,300 crore as of end-May, from Rs2,369 crore on 31 March, 2006. This exceeds Nacil’s provisional revenues of Rs15,000 crore for fiscal 2009, up from the equivalent of two months turnover in fiscal 2006, when sales were Rs14,600 crore.
To press home the urgency of its financial situation, Nacil’s Jadhav and aviation secretary Nambiar met cabinet secretary K. M. Chandrasekhar on Saturday. This was followed on Monday by a meeting that Jadhav and Nambiar had with T.K.A. Nair, principal secretary to the Prime Minister. In both meetings, a bailout amount of Rs9,500 crore was discussed.
Besides government funding, Air India has proposed cost-cutting measures within the airline, termination of aircraft leases, possible deferment of plane deliveries, and restructuring of aircraft loans.
On Monday, the airline said it aimed to reduce wage costs by Rs500 crore, or 16%, this fiscal.
The government funding, Nacil has suggested, can be infused through redeemable preference shares or zero interest convertible debt. Such preference shares can be redeemed at a premium if there’s a future capital induction from non-government sources in future, it added.
The airline also wants that induction of planes in future—for which it requires Rs15,000 crore—be supported by sovereign guarantee and fully co-ordinated by State Bank of India.
Structuring such loans over two sequential periods—first, backed by guarantees of export-import banks from the country of the plane vendor, and, second, guaranteed by the government—will make for a loan tenure of 15 years with a three-year moratorium easing pressure on cash flows in the medium term, Nacil added.
tarun.s@livemint.com
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First Published: Tue, Jun 23 2009. 10 53 PM IST
More Topics: Air India | Nacil | Aviation | Airline | Bailout |